News

The People’s Bank of China announced an easing of borrowing requirements as a step to boost lending and stimulate growth in response to data which suggests weakening growth. The bank will allow more commercial lenders to use loans as collateral to borrow funds at low rates from the central bank in return for the lender steering loans to designated sectors of the Chinese economy. The PBoC started a trial last year in two provinces and this announcement marks an expansion to other provinces.

While some Chinese media has branded the exercise “quantitative easing”, UBS thought the scale of the move would be limited as there was little demand for credit from China’s corporate sector in any case. Goldman Sachs saw the expanded programme as more a way changing the composition of loans. The programme is “aimed more at improving the structure of lending than meaningfully increasing the overall amount.”

The Westpac-Melbourne Institute index of consumer sentiment increased to 97.8 in October from the September recording of 93.9. The rise in the index indicates an increase in the ratio of optimistic consumers to pessimistic consumers and it reverses most of September’s fall.

Unlike last month, Westpac’s chief economist, Bill Evans said the result was not as he had anticipated. “This result is a little short of the increase we would had expected given the strong boost the government received in the polls following recent leadership and ministerial changes. He thought other drivers behind the reduction in pessimism were a stronger dollar and share market plus a firmer jobs market. “The unemployment rate was recently reported to have fallen to 6.2% and jobs growth has been much stronger than anticipated over the past year. He noted job seekers had a more optimistic view of the labour market which he viewed as being “even more significant result than the increase in the overall Index.”

Recently Suncorp embarked on a series of investor briefings and as expected the bank announced a two-tranche issue of 5y fixed- and floating-rate bonds. Demand for the floating-rate component seems to have increased the total size of the issue from what was initially indicated, around $400m-$500m, to the announced $750m. The strong demand has also flowed through to the pricing with the initial guidance around Swap + 130bps but final pricing for the fixed and floating tranches were Swap/BBSW + 125bps.

Back in August, Suncorp issued 1.5y FRNs at BBSW + 52bps. Using the current swap curve that pricing looks around 28bps tighter than today indicating that spreads have widened considerably over the last month or so.

Queensland Treasury Corp issued another $300m of its existing July 2023 series via tender at a weighted average margin of EFP + 33.6583bps. Commonwealth Bank said the tap went well, attracting good demand with a coverage ratio of 4.25. QTC was last in the bond market in early August when it issued $1.25bn of July 2025s at ACGB + 52bps.

Commonwealth Bank has just issued $2bn worth of 3y year FRNs at BBSW + 78bps. This issue comes around three months since its last domestic issue when it sold $1.5bn of 5y FRNs at BBSW + 90bps. The gap between 3y swaps and 5y swaps is currently about 35bps so the fact Commonwealth will be paying 78bps instead of 55bps may be another indication of the widening of corporate spreads over recent months.

Origin Energy Notes returned to trading after the completion of institutional component of the $2.5bn rights issue. As the previous YieldReport article noted, recent hybrid purchasers that risked buying the hybrids at a shade over $94 picked up an almost-instant $5 capital gain as the notes restarted trading at $99.011. Longer term holders may well have also felt some relief as the price climbed back closer to the levels averaged over the last few years.

The next interest payment will be made in December this year and then there will be another four payments between now and when the notes are expected to be redeemed at $100 per security on the December 2016 call date. 

Victoria Power Networks, owner and operator of Melbourne and Victorian electricity distribution networks, announced it will be holding a series of investor presentations. A debt issue is likely to follow.

Cigarettes, holiday travel and accommodation price rises drove September inflation higher, while lower fuel, newspapers, books and stationary prices reduced some of the pressure, according to the TD Securities – Melbourne Institute Monthly Inflation Gauge. The index rose 0.3% in September for an annual rate of 1.9% while the comparable August figures were 0.1% and 1.7% respectively. Annette Beacher, Chief Asia-Pacific Macro Strategist at TD Securities said, “We expect headline inflation to jump by 0.8% in the (September) quarter, to be 1.8% higher than a year ago, while we forecast underlying inflation to increase by 0.5% in the quarter, for an annual rate of 2.4%.” She said the weaker exchange rate is increasing “tradeables” inflation while subdued domestic inflation is providing some relief for consumers. Underlying inflation, as measured by the trimmed mean, rose 0.2% for the month and is 1.6% for the year.

US employers added 142,000 jobs in September, below market estimates of 200,000, according to the US Labor Department. The unemployment remained steady at 5.1%, the lowest rate since March 2008, but it would have been higher had the participation rate not fallen by 0.2% to 62.4%. August numbers were revised down from 173,000 to 136,000 and July’s numbers were also revised down from 245,000 to 223,000.

NAB’s David de Garis said, “It certainly caught a lot of investors by surprise. A lot of analysts are wondering what’s going on with US employment right now and whether the payrolls number is correctly reflecting the state of the US labour market.”

ANZ said, “The Fed is extremely unlikely to begin policy normalisation as soon as this month and December is looking tenuous too.”  ANZ did caution against relying on one month’s data but noted the broad weakness in the various segment of the report; falling household employment, a lower participation rate, flat hourly earnings rates and downward revisions to the previous two months’ figures.  Commonwealth Bank said pretty much the same thing and summed it up as a “nasty combination”.

US bond yields fell as a result, with the 10y rate falling 5bps to 1.99%, a level not seen since May. Australian 10y rates remained unchanged when local markets opened the next business day.

Charter Hall Retail Real Estate Investment Trust announced that it has mandated National Australia Bank to arrange meetings with fixed income investors in Australia during mid-October. Charter Hall last issued US$200m of 12y fixed rate bonds at BBSW + 194bps in July. The trust has a Baa1 (stable) rating from Moody’s and the roadshow is seen as a prelude to a new issue.