11 Jan – 15 Jan 2016

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With the greater level of uncertainty in equity and commodity markets, one of the first places investors look to as an investment alternative is in the bond and term deposit markets. One other alternative is in the short-dated hybrids / ASX listed notes market. Australian Unity and ANZ have 2016 and 2017 notes which may provide a 3 month or 18 month investment for investors who wish to park their money. For investors willing to take a greater level of risk there are several bank hybrids with 2016 and 2017 call/step up dates which may provide the sort of investment time frame investors are seeking. Origin Notes are likely to be redeemed in December of 2016 and are presently paying a yield of around 9.20%. Refer our tables below for more details.

The trading margins of ASX-listed floating rate notes and bonds continued the trend of recent months and rose modestly (the trading margin is added to the bank bill rate of around 2.30% to get the total investor return). The average trading margin of floating rate notes and bonds in the YieldReport survey increased over the week to 3.13%, 6bps more than the 3.07% average yield prior to Christmas. The average margin of securities in this sector in November and October were 2.94% and 2.62% respectively and so the trend is quite unambiguous.

ASX-listed floating rate hybrid margins went in the other direction and fell on average. The average hybrid trading margin at the end of the week was 4.73%, 8bps less than the 4.81% average yield prior to Christmas but still more than the 4.59% recorded at the end of November and October’s average of 4.31%.

The following chart is from Evans and Partners. For January the All Bonds index (an E & P index of various ASX listed corporate bonds) is down 0.60% and the All Hybrids index (also an E & P index of various ASX hybrid securities) is down 0.31% against the equity market’s return of -7.41%. It is a good illustration of how hybrids and notes should experience less volatility than direct equities.Hybrid Relative Performance EvansPartners

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ASX-LISTED HYBRIDS

COMPANYCODEHYBRID
TYPE
MATURITY
OR STEP-UP
DATE
MARGIN
INC FRANK
TRADING
MARGIN
∆ WEEKWEEK
CLOSE
YTM
Est**
ANZ Banking GroupANZPAMCPS I16-Dec-163.10%2.80%-0.28%100.695.09%
ANZ Banking GroupANZPCMCPS II28-Sep-173.10%4.60%0.64%99.767.02%
ANZ Banking GroupANZPDMCPS II1-Sep-213.40%4.97%-0.02%95.057.39%
ANZ Banking GroupANZPECapital Note24-Mar-223.25%4.98%-0.01%93.287.40%
Bendigo BankBENHBPerpetual21-Oct-541.00%2.95%-0.03%05.24%
Bendigo BankBENPDMCPS II13-Dec-175.00%4.67%0.29%101.27.09%
Bendigo BankBENPEMCPS II30-Nov-203.20%5.22%0.16%92.597.64%
Bendigo BankBENPFMCPSII15-Jun-214.00%5.21%0.40%95.257.63%
Bank Of QueenslandBOQPDMCPS II16-Apr-185.10%4.74%-0.20%102.67.16%
CBA PERLS 3PCAPAStep Up6-Apr-161.05%2.39%-0.70%1994.68%
CBA PERLS 6CBAPCMCPS II15-Dec-183.80%4.01%0.44%99.956.30%
CBA PERLS 7CBAPDMCPS II15-Dec-222.80%5.03%0.10%88.57.32%
ChallengerCGFPACapital Note25-May-203.40%5.38%0.33%93.57.67%
IAGIAGPCMCPS II1-May-174.00%4.55%0.26%100.66.97%
IAG RESIANGReset pref16-Dec-194.00%4.18%0.21%99.96.47%
Macquarie BankMBLHBIncome Sec(Perpetual)1.70%4.09%0.11%67.556.38%
MacquarieMBLPACapital Note24-Mar-203.30%5.03%0.11%94.47.45%
MacquarieMQGPACapital Note19-Jun-184.00%4.39%0.26%99.156.81%
Multiplex SITESMXUPAPerp'l Pref(Perpetual)3.90%6.52%0.15%72.58.81%
Nat Aust BankNABHAIncome Sec(Perpetual)1.25%3.48%0.08%67.955.77%
Nat Aust BankNABPAMCPS II20-Mar-193.20%4.56%0.05%96.56.85%
Nat Aust BankNABPBMCPS II17-Dec-203.25%4.96%0.16%93.417.25%
NufarmNFNGStep Up(Perpetual)3.90%5.61%0.09%828.03%
PaperlinxPXUPAPerp'l Pref30-Jun-52N/A8.80%0.00%1111.22%
Ramsay Health CareRHCPAPerp'l Pref(Perpetual)4.85%4.70%-0.01%103.67.12%
Suncorp-MetwaySBKHBIncome Sec(Perpetual)0.75%2.19%0.09%75.484.48%
SuncorpSUNPCMCPS II17-Dec-174.65%3.84%-0.47%101.996.13%
SuncorpSUNPEMCPS II17-Jun-203.40%5.17%0.06%93.857.46%
Seven Network TELYS 4SVWPAPerp'l Pref2-Dec-544.75%9.82%0.40%6112.24%
WestpacWBCPCMCPS II31-Mar-183.25%4.55%0.06%996.97%
WestpacWBCPDMCPS II8-Mar-193.20%4.28%-0.14%97.56.57%
WestpacWBCPEMCPS II23-Sep-223.05%5.04%0.06%89.997.33%
WestpacWCTPAStep Up30-Jun-161.00%3.37%0.68%99.055.66%

** YTM for floating rate securities is an estimate using current interest rates. This will vary if rates change.
Source: Evans & Partners. Dealing Contact Michael Saba +61 3 9631 9813

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