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Category: Credit Research

How are Stocks and Bonds Correlated?

Historically, bonds and stocks move inversely to each other, and while this hasn’t always been the case, this relationship has held in recent years. However, as with most rules, it is not without exceptions. Broad macroeconomic conditions factor into the Reserve Bank of Australia’s (RBA) decisions on the RBA Official Cash Rate and affect investors’…Read More

What Causes a Yield Curve Inversion?

A key concept in all finance is the time value of money.  Investors are generally increasingly compensated for lending their money for longer periods of time (assuming same inherent credit risk) with higher returns as demonstrated above in figure 1 below. Figure 1. Australian Swap Curves – Beginning & End 2018 Source: BondAdviser, Bloomberg However,…Read More

GE & AMP: Case Studies in Tactical Investing

In April this year, the Banking Royal Commission prompted the first large company scalp with the resignation of AMP’s (ASX: AMP) CEO Craig Meller.  Mr Meller’s resignation followed revelations of serious misconduct by the institution for almost a decade and capped off a week in which its failures were brutally and publicly exposed. A few…Read More

Has APRA just Gold-Plated Hybrid Instruments for Australian Pensioners?

On 8 November 2018, the Australian Prudential Regulatory Authority (APRA) announced its long-awaited proposal (a discussion paper) on Increasing the loss-absorbing capacity of ADIs to support orderly resolution.  We previously discussed what the proposed changes could be as far back as April 2017, when we looked at the potential for “Tier 3” regulatory capital introduction…Read More

RCR Tomlinson: A Lesson in Project Risk

The collapse of engineering group RCR Tomlinson (ASX: RCR) into administration on 23 November capped a remarkable fall for one of the oldest engineering contractors in the country.  However, whilst the appointment of administrators, that are set to carve up and sell off parts of the ailing business, surprised many in the market, company collapses…Read More

BICRA and TLAC: Revisiting Bank Hybrids Ahead of Possible Rating and Regulatory Changes

Credit rating agencies such as Moody’s and Standard & Poor’s (S&P) have been in focus throughout 2018 as investors have watched the Australian financial landscape increasingly enter new territory.  This has largely been a function of the Royal Commission into Banking and Financial Services, as well as the more unstable political environment seen throughout the…Read More

Corporate Bonds May Be in Decline… But Are Corporate Loans the Answer?

The decision by G8 Education (ASX: GEM) to redeem and refinance its $50 million senior unsecured bonds in March 2018 was reasonably standard practice as far as corporate bond markets are concerned given a company in reasonable financial health. However, the $450 million syndicated bank facility announced in October was an interesting development in the…Read More

Australian Banks Almost Exited from Life Insurance

For recent decades the Australian life insurance market has been dominated by the major banks and AMP. After a short-lived attempt to expand into Asia by the then National Mutual Life Association of Australasia, Australia has not produced a meaningful and competitive international life insurer. Today, even the big banks are shedding their remaining life…Read More