The search for yield and lack of supply drive investors’ returns in 2016 and may do so again in 2017
Melbourne, 13 January, 2017 – Australia Ratings’ review of its ASX-listed debt securities
indices shows contrasting performance between 2015 and 2016.
Investors in ASX-listed debt securities have enjoyed strong returns in 2016. This comes as compensation for the poor returns experienced in 2015 and reflects the opposing forces driving the market in each year.
Philip Bayley, Director noted that the search for yield, as interest rates continued to fall, and a lack of supply as redemptions exceeded new issues, particularly towards the end of the year, drove up prices among listed debt securities in 2016.
It seemed 2015 suffered a hangover from the excesses of 2014 and earlier years. New issues had been abundant and credit margins had been steadily compressed,
This culminated in October 2014, when the Commonwealth Bank listed the $3.0 billion PERLS VII (CBAPD) hybrid notes, paying a credit margin of just 280bps over the 90 day bank bill rate. This was the largest issue and the tightest credit margin the market had seen, and it hasn’t been repeated since.
Credit margins widened throughout 2015 and into 2016, as the market digested supply and repriced credit risk. As a result, total returns to listed debt investors in 2015, ranged from modest to negative. Security prices generally fell over the year and positive total returns required distributions paid to exceed the fall in the price of the securities held.
Australia Ratings’ Combined index for ASX-listed debt securities shows a return of 8.04% for 2016. In 2015, the return was a negative 0.75%.
Read Philip Bayley’s full review of Australia Ratings ASX listed debt securities indices performance over 2015 and 2016 and his outlook for 2017.
For more information about Australia Ratings’ listed debt securities Indices, visit www.australiaratings.com/services/indices.