Listed Debt Securities Indices Performance Review

July 2017
Dry July
July was notable for being a month in which virtually nothing happened in ASX-listed debt securities market. No new issues entered the market and no existing issues were redeemed.

See Weighted Average Yield 2015 to 2017

Only two issues went ex-distribution during the month: the Australian Unity Series B bonds (AYUHB) and the Villa World bonds (VLWHA). Both are senior ranking bonds and therefore members of the Green index.

And there was very little price movement across what has become a high priced, lower yielding market.

There was however, a change to the composition of the Combined and Red indices with the addition of Suncorp’s recently issued capital notes (SUNPF). The notes were assigned an ‘A/RED’ rating by Australia Ratings during the month and have now been added to the indices.

Despite a relatively small issue size of $375 million and entering the indices at a price of $104.01, the impact is nevertheless, dilutionary. Excluding the SUNPF notes from the indices would have seen increases of 0.26% and 0.29%, respectively.

As it was, the Combined index increased by just 0.17% over the month, largely driven by a 0.19% increase in the Red index, the largest subsector of the Combined index. The performance of the Combined index was also aided by a 0.45% increase in the Green index.

An offsetting contributor was the Yellow index, which declined by 0.04%.

With no constituents of the Red index going ex-distribution during the month, the increase in the value of the index was driven solely by price movements, leaving aside the impact of the SUNPF notes entering the index. The largest price increase was seen in the new CBA PERLS IX notes, which increased by 1.42% over the month to $102.90.

There were three other issues that enjoyed price increases of 1.00% or more. At $108.27, the Macquarie Group Capital Notes 2 (MQGPB) are nominally the most expensive in the market.

The price of some Red index constituents actually fell during the month, with the nab Convertible Preference Shares II (NABPB) falling by 0.50% to $101.50.

The performance of the Green index is attributable to the distributions mentioned above and the fact that the price of the AYUHB bonds actually increased by 0.81% to $105.50, and the price of the VLWHA bonds fell by just 0.20% to $101.30.

The fall in the value of Yellow index is due to the price of the Crown Resorts subordinated note (CWNHA) dropping slightly over the month. Crown Resorts suspended its buyback of the notes at the end of June and will not resume until after its full year results are announced later this month.

The weighted average yield of the Yellow index has increased slightly as a result of the decline in the value of the index. However, the weighted average yield of the other indices is largely unchanged over the month, reflecting the underlying price performance of the indices.

Chart 1Weighted Average Index Yields 2015 to 2017

Source: ADCM Services, Ord Minnett

Debt Securities’ Level of Complexity (PCI):
Green - simple; Blue – relatively simple; Yellow – complex; Orange – more complex; Red – very complex; Black - Combined


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