Last week, AAI’s fixed and floating rate bonds were called. Some investors are still assessing reinvestment options. Here we highlight some of the best investment grade bonds and term deposit rates available right now
AAI (formerly known as Vero Insurance and Suncorp) called two bonds last week both of which were subordinated, investment grade notes issued in 2005. One was fixed, one floating. Their final legal maturity was not until 2025.
We have compiled a list of similar quality bonds below and also provided some term deposit options for those looking to reinvest. The importance of diversity and allocation to quality investments (such as investment grade bonds and bank deposits) in a portfolio could not be clearer in today’s uncertain market.
Attractive investment grade bonds
High quality bonds in both the corporate and infrastructure sector may not carry the yield to excite many investors. They do, however, serve an important role in a portfolio, providing a degree of certainty with respect to income and capital preservation.
These bonds can be held over longer terms and, as such, yields will typically exceed those on term deposits but are usually still fairly liquid investments.
Holding investment grade bonds in your portfolio can also help to offset higher risk investments, helping to reduce volatility. The tables below highlight bonds that investors may find suitable as a replacement for the fixed or floating cash flows of their AAI holdings.
Figure 1 below includes bonds currently available to both wholesale and retail investors, whereas, Figure 2 contains options for wholesale investors only. All bonds are investment grade and are either senior debt or old-style Lower Tier 2 (that do not contain non-viability write-off or conversion triggers) in the capital structure.
Investment grade bonds available to both retail and wholesale investors
| Issuer | Maturity date | Coupon / Coupon margin | Coupon type | Capital structure | Trading margin | Yield to maturity | Running yield | Capital price | Minimum parcel |
| National Wealth Management | 16 June 2026 (16 June 2016 call) | 6.75% | Fixed | Lower Tier 2 | 1.40% | 3.55% | 6.60% | 102.316 | $10,000 |
| National Wealth Management | 16 June 2026 (16 June 2016 call) | 0.63% | Floating | Lower Tier 2 | 1.40% | 3.55% | 2.83% | 99.437 | $10,000 |
| Downer | 29 November 2018 | 5.75% | Fixed | Senior Debt | 1.51% | 3.71% | 5.42% | 106.098 | $10,000 |
| DBNGP Finance | 11 October 2019 | 6.00% | Fixed | Senior Debt | 1.37% | 3.76% | 5.54% | 108.368 | $10,000 |
| Adani Abbot Point Terminal | 29 May 2020 | 6.10% | Fixed | Senior Debt | 3.23% | 5.70% | 6.00% | 101.600 | $10,000 |
| DBCT Finance | 9 June 2021 | 0.30% | Floating | Senior Debt | 1.85% | 4.45% | 2.67% | 92.202 | $10,000 |
| DBCT Finance | 9 June 2026 | 0.37% | Floating | Senior Debt | 2.13% | 5.21% | 2.96% | 85.603 | $50,000 |
Figure 1
*Note pricing accurate as at 15 September and subject to change.
Investment grade bonds available to wholesale investors only
| Issuer | Rating | Maturity date | Coupon / Coupon margin | Coupon type | Capital structure | Trading margin | Yield to maturity | Running yield | Capital price | Minimum parcel |
| Genworth | A | 30 June 2021 (2016 call) | 4.75% | Floating | Lower Tier 2 | 1.75% | 3.88% | 6.74% | 102.304 | $10,000 |
| Apple | AA+ | 28 August 2019 | 2.85% | Fixed | Senior Debt | 0.20% | 2.57% | 2.82% | 101.042 | $10,000 |
| Apple | AA+ | 28 August 2019 | 0.65% | Floating | Senior Debt | 0.31% | 2.67% | 2.75% | 101.265 | $10,000 |
| SABMiller | A3 | 7 August 2020 | 3.75% | Fixed | Senior Debt | 0.75% | 3.25% | 3.67% | 102.238 | $10,000 |
| Downer | - | 11 March 2022 | 4.50% | Fixed | Senior Debt | 1.63% | 4.34% | 4.46% | 100.906 | $10,000 |
| Apple | AA+ | 28 August 2022 | 3.70% | Fixed | Senior Debt | 0.75% | 3.52% | 3.66% | 101.099 | $10,000 |
| Sun Group | BBB | 16 December 2024 | 2.05% | Floating | Senior Debt | 1.72% | 4.69% | 4.13% | 102.463 | $10,000 |
| Asciano | BBB | 19 May 2025 | 5.25% | Fixed | Senior Debt | 1.70% | 4.72% | 5.04% | 104.101 | $10,000 |
Figure 2
*Note pricing accurate as at 15 September and subject to change. Rating for Downer bond available for wholesale investors only.
These options vary across term and implied credit quality. Naturally, as term extends and credit quality weakens, returns increase. High quality shorter dated lines, such as the 2019 Apple bonds (fixed and floating lines available), return less as investors are being paid less for taking less risk.
Some investors may argue that Apple’s credit quality is better than those of Australia’s major banks. Its four year bonds pay a similar return to a year term deposit from the majors. However, investing in an Apple bond may be a more suitable investment choice for you should you require liquidity as Basel III reforms have made term deposits unbreakable.
Flight to quality is an emerging theme we have seen in trading for fundamental reasons. An allocation to investment grade credit could support your broader investment strategy. If higher risk asset classes, or even higher risk bonds, sell off amid market turmoil, high quality stable assets will often attract a strong bid and can show price appreciation in the face of volatility.
Best term deposits rates available now
An alternative investment opportunity exists in the term deposit space. While yields are lower in line with the cash rate, term deposits remain important investments in a balanced portfolio for capital preservation and diversification.
FIIG has relationships with a broad range of Australian Authorised Deposit-taking Institutions (ADI’s). Under the terms of the APRA administered Financial Claims Scheme, deposits with many of these institutions are protected by a government guarantee of $250,000 per account holder per ADI.
A current selection of investment options from this group includes the following*:
| ADI name | Term | Yield |
| Bendigo & Adelaide Bank | 60 days | 2.25% |
| ANZ Bank | 90 days | 2.80% |
| ING Direct | 180 days | 2.90% |
| G & C Mutual Bank | 360 days | 2.60% |
*Some restrictions on minimum investment amounts may apply, pricing accurate as at 14 September and subject to change.
Please contact your FIIG Representative for more information.