Australian Bond Exchange Weekly Newsletter
26 August 2022
“The individual investor should act consistently as an investor and not as a speculator” –Benjamin Graham
Key Points
- Traders pump money into the US debt market as inflation eases
- Australian Green debt on the rise
- $130bn loss on China developers’ dollar bonds
- Current investment opportunities
Highlight
US Bond Market Picks Up
Investors’ renewed optimism about the state of the US economy has sent traders back into the bond market. Money has been pumped into investment grade, high yield and emerging market debt funds in recent weeks, after sustained outflows since January, according to flows tracked by EPFR (Emerging Portfolio Fund Research).
Just 6.2 percent of high-yield bonds are now trading at distressed levels, compared with 11.6 percent on July 5, according to an analysis by Marty Fridson, a chief investment officer of Lehmann Livian Fridson Advisors.
Aggressive rate rises by the Fed deterred investors from US high-yield corporate debt earlier this year, fearing that the rate rises would force the US economy into a protracted slowdown and hit the country’s weakest companies hardest. But several data releases have suggested that inflation has stabilised in the US economy, meaning expectations that the Fed will bring in a third consecutive 0.75 percentage point rise in September have eased.
Australia
Green debt on The Rise
Australian green bond issuance is set for a record-breaking year after having been lifted by the current government’s commitment to emissions cuts and climate change. So far this year, A$4.6 billion of green debt has been issued and looks set to pass last year’s A$6 billion total, data by Bloomberg show.
The country’s green debt industry has been bought into focus since the federal elections in May, which secured a record vote for the Greens and cemented climate policy as a priority for the Labor government.
Australia represents a small corner of global borrowings focused on environmental, social and governance issues, but the policy shift enhances the market’s potential. Banks have shown a strong interest in not only green debt but also in social and governance-linked financing, said Duncan Beattie, head of dept capital markets for Australia and New Zealand at Barclays.
“The challenge here obviously is that we’re a very natural resource-heavy economy,” said Beattie. “ESG here has grown exponentially in the last five to 10 years. It was super important even before the change in government and it’s probably just got more important going forward.”
Global
$130bn loss on China developers’ dollar bonds
China’s central bank has cut the mortgage lending rate for the second time in a week as economic policymakers race to revive credit demand and starve off a property crisis.
Investors have priced in almost $130bn of losses in outstanding dollar bond repayments owed by Chinese real estate groups. Two-thirds of the more than 500 outstanding dollar bonds issued by Chinese developers are now priced below 70 cents on the dollar, a common threshold for distressed status, according to a Financial Times analysis of Bloomberg data.
The rising pressure on the market comes a year after Evergrande, the world’s most indebted developer, began spiralling into default, causing turmoil throughout a sector responsible for roughly 30 percent of the country’s annual economic output.
Current Investment Opportunities
You can now invest in a new Australian dollar fixed coupon bond linked over Marks & Spencer PLC yielding a 6.00% per annum return paid every 6 months. Marks & Spencer Group PLC is a leading British Retailer that provides retail of clothing, food, and home products. The bond information is here.
You can also still invest in the 5.5% fixed coupon bond linked over Rolls Royce Holdings PLC and Sydney Airport CPI linked bond, more information available here.
Contact us if you have any questions or would like any assistance.
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