Weekly Highlights

Last week, the equity markets rallied following a number of central bank meetings by the Bank of Japan (BoJ), the US Federal Reserve (FED) and the Reserve Bank of New Zealand (RBNZ) who all effectively reiterated lower interest rates for now. As a result, the ASX200 Accumulation Index ended the week up 2.54%. Bond markets also rallied with the Ausbond Composite Index and Ausbond Credit Index rising modestly by 0.43% and 0.27% respectively as bond yields fell. By the end of the week, however, the Fed and BoJ inspired boost to equity markets started to fade as the energy sector fell in response to lower oil prices.

Turning to credit news, credit rating agency Standard and Poors (S&P) downgraded Alumina last week by two notches from BBB- to BB (outlook stable), effectively determining that the company’s credit is now sub investment grade. S&P pointed to the materially weaker Joint Venture (JV) partner than prior to the Alcoa split. The credit rating downgrade will most likely result in a 1.75% coupon step up for the November 2019 bonds with Alumina facing a difficult and long journey towards regaining an investment grade rating. S&P also said it expects the AWAC JV owners will move to issuing debt from the asset level.

S&P also downgraded six insurance entities of the major banks a notch (from AA- to A+) and two intermediate holding companies (from A+ to A) last week. S&P took this action after revising its assumption of the strategic importance of these entities to their larger parents and the likelihood and timeliness of support following the sale of some insurance businesses over the past year, greater regulation to prevent contagion risks and capital allocation pressures from increasing bank regulatory capital requirements.

On the ASX listed hybrid front, the ANZ Capital Notes 4 (ASX code ANZPG) are due to commence trading (on a deferred settlement basis) on Wednesday. The ANZPG have a first optional call date of 20 March 2024 (~7.5 years) with the closest comparable security being the ANZ Capital Notes 3 (ASX code ANZPF) with a 1st optional call date of 24 March 2023.

Primary market activity remains strong following a series of meetings with debt investors last week. Transurban Queensland Finance and Suncorp are expected to announce new bond issues over the coming weeks. The CBA priced a senior bond deal, closing an A$150 million floating rate note (FRN) transaction last week at 0.97% over the 90 day bank bill swap rate (90BBSW). These securities were sold to wholesale investors only (no prospectus being issued) and are not listed on the Australian Securities Exchange.

Click below for Charts

Chart 1: Bloomberg AUSBond Composite Index (Monthly)

Chart 2: Bonds vs Equities 2015/2016 (Monthly)

Chart 3: Term Deposit Review – August 2016