by
Alen Golubovic | Sep 29, 2014
Last week saw another new 'BBB' issue in the Australian corporate bond market, with Dampier Bunbury Pipeline (DBNGP) issuing $100m in 6 year bonds. The deal was priced at an issue margin of just 160 basis points (bps) over the swap rate. This reflects the trend for new investment grade bond issues to offer relatively low yields.
Despite this trend, FIIG Securities is still able to offer some investment grade, BBB bonds with significantly higher yields. In particular, Sydney Airport and Adani Abbot Point represent good opportunities to secure high relative value in the BBB space, and both are available to FIIG investors. For investors who are also seeking US dollar exposure, Newcrest is another high value investment grade offering.
New ‘BBB’ issues are very tightly priced
Over the past three months, there have been three notable bond issues in the ‘BBB’ space – Port of Brisbane, Glencore and Dampier Bunbury Pipeline (DBNGP). Since their issue, both Port of Brisbane and Glencore have been trading at margins inside their issue spreads in the secondary market, with DBNGP expected to settle on 1 October.
This is outlined in the table below.
Source: Kanganews, FIIG Securities
*DBNGP expected to settle on 1 October so issue margin is shown
FIIG’s BBB offering shows high relative value against these new issues
In spite of the tightening of BBB credit margins we have seen on new bond issues, FIIG Securities continues to offer higher yielding bonds in the BBB space. The Sydney Airport 2020 inflation linked bond and Adani Abbot Point 2020 fixed rate bond are two prime examples of this. These two bonds are both rated BBB, but are currently indicatively offered at margins of 232bps and 246bps respectively over the swap rate.
This relative value is clearly demonstrated in the chart below, with the BBB bonds offered to FIIG investors trading at margins almost 1.00% above where recent bond issues are currently trading. Each of these bonds has been rated in the same credit rating category by the rating agencies, and FIIG is currently offering investors much higher returns for taking a similar credit risk profile.
Source: FIIG Securities. All trading margins are indicative and are expressed as a margin over the swap rate.
Newcrest – another high value BBB bond providing US dollar exposure
FIIG is also pleased to offer another investment grade bond with US dollar exposure, the Newcrest 2022 bond, which is currently indicatively offered at a yield to maturity of 5.07%. If this return was swapped back into Australian dollars, the equivalent Australian dollar yield to maturity would be 6.63%, or a trading margin of 301bps.
Please speak to your FIIG representative if you are interested in the Sydney Airport, Adani Abbot Point or Newcrest bonds.
All prices and yields are a guide only and subject to market availability. FIIG does not make a market in these securities.
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