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Tuesday 11 December 2018 by FIIG Research Sales commentary

From the trading desk

Brexit vote delayed, China and the US agree to a 90 day ceasefire, RBA holds cash rate, new USD denominated Westpac Tier 2 bond available, Transalta and Dell USD bonds offering attractive yields, and investors continue to add higher rated investment grade RMBS to their portfolios

AUD & USD

We have added a USD denominated Westpac Tier 2 bond to bolster our USD investment grade offering for wholesale clients. This bond is available in USD10,000 minimums and would appeal to clients wanting to improve credit quality of their USD investments.It is offered at an indicative yield to call of 4.99%pa.
The short dated Transalta 4.50% 2022 bond and Diamond (Dell) 2026 bond are other good offerings in USD investment grade with attractive yields on a relative value basis.The bonds are available to wholesale investors at indicative yields of 4.64%pa and 5.35%pa, respectively.
Last week, supply in the IMB 2021 call and 2022 call Tier 2 floating rate notes were uncovered.Often hard to source, they were a welcome investment grade addition to wholesale portfolios.Limited supply in the 2021 call note is available at an indicative margin of 3mBBSW+2.38%.
There are a number of investment grade RMBS tranches available for secondary trading, as investors continue to include higher rated notes to portfolios.The Resi 2018-2 class C notes are available at an indicative margin of 1mBBSW+2.46% for wholesale clients.

Economic wrap

The pound falls to the lowest level against the greenback since April 2017, following Theresa May backing down and delaying the Brexit vote rather than face a heavy defeat in Parliament on Tuesday. The main issue remains the border between Northern Ireland and the Republic of Ireland.
CNBC reported that the S&P500 is on track for the worst year in a decade as stocks saw a huge reversal on Monday amid fears of slowing global economic growth, a hiking Fed and peak earnings.
Tech’s FAAANG stocks have collectively lost more than USD1trn in value from recent highs as they all fell to begin Tuesday trading.
The week started on a positive note, with Presidents Xi and Trump agreeing on a 90-day window to advance trade discussions between the two countries, although it went downhill from there.
On Tuesday, the RBA delivered the expected ‘no change’ to the cash rate but the accompanying statement started to highlight some uncertainty. The prospect of the next move being a rate cut is gaining traction and markets are now only pricing a 30% probability of a rate hike by the end of 2019. This turn in sentiment mirrors the view that the FOMC in the US could limit rate hikes to two next year and some believing it could be limited to a single hike.
The long awaited OPEC meeting last Thursday night was expected to deliver some more clarity on production for next year but, not surprisingly, no agreement was reached. Given the consensus around the supply / demand imbalance, a lack of progress on production cuts will continue to see pressure on oil prices.

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FIIG Research comprises an in house team of research analysts dedicated to providing analysis and fixed income research.

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