Three weeks ago I wrote about how comments from Fed Chairman Ben Bernanke had spooked markets by suggesting the easy money of Quantitative Easing wouldn’t last forever, reminding investors of the importance of considering risk and as a result pushing equities down and the yield curve up here.
Since then we have continued to see the swap curve move wider in the later years. Figure 1 shows the yield on the five year swap curve having increased by 28bps over the last month – an increase that is reflected in the returns on offer for investors targeting bonds with similar maturities.
Our view on the best value in market hasn’t changed; investors just get some extra kicker in their yield. We continue to see the best value in the curve presenting in maturities in the 2018 to 2020 period. Wholesale investors will find very good yields in the recently issued Qantas, Lend Lease and Downer issues and the best opportunities for retail investors are from DBCT, Stockland and National Wealth (see Table 1).
Table 1
Source: FIIG Securities
Notes:
Black = retail and wholesale clients, red = wholesale clients only
Yield for floating rate notes is the swap rate to maturity/call plus the trading margin
Prices are accurate as at 16 July and are a guide only and subject to market availability. FIIG does not make a market in these securities.