Annual US inflation accelerated to 2.6% in October 2024, up from 2.4% in September. It’s the first increase in seven months. Coupled with expected inflationary Trump policies including tax cuts, tariffs and a cut on immigration, many commentators think the US rate cutting cycle will be shallow and brief.
Similarly, domestic economists are pushing back forecast RBA rate cuts. The RBA minutes came out this week stating, “Returning inflation to target remains the Board’s highest priority and it will do what is necessary to achieve that outcome”. Based on the information available before the US presidential election, members agreed that it was “not possible to rule anything in or out in relation to future changes in the cash rate target”.
There’s been plenty of new corporate bond issuance. In the US, US$50 billion was raised in the last week on favourable conditions. Companies such as Caterpillar, Gilead Sciences and Goldman Sachs issued, benefitting from the lowest corporate borrowing costs relative to US Treasurys in decades, driven by investor optimism about potential tax cuts.
Further, US blue chip companies have issued US$1.417 trillion in high grade bonds this year, the second highest on record. The average yield has been 5.25%.
The domestic market has also been busy:
- Avanti has mandated for an Australian dollar senior-secured deal.
- Barclays is taking IOIs for 10.5NC5.5 tier-two deal with a fixed-to-FRN and/or FRN
price guidance is 225bps over swap. - CBA printed A$1.5 billion 15NC10 tier-two notes – learn more in this brief note, which includes a comparison of other major bank sub debt issues.
- Iberdrola issued a 10-year, senior unsecured, fixed rate Kangaroo green bond. Price guidance was 135 basis points over semi quarterly swap (six-year tranche), 160bps over semi quarterly swap (10-year tranche). The issue printed at 120bps and 143bps respectively.
- Port of Melbourne printed A$450 million seven-year fixed bond with a coupon rate of 5.5% or 128bps over semi quarterly swap.
- QBE printed A$250 million 12NC7 subordinated, floating rate deal at 3-month BBSW +180bps.
- Rabobank Australia is taking IOIs for three-and-a-half year senior deal. Price guidance is 80bps over swap.
- Scentre Management has mandated a dual-tranche senior bond – a five-year fixed to floating tranche and a 10-year fixed rate tranche. Price guidance is 130bps over swap for the five-year tranche and 170bps over s-q swap for the 10-year tranche.
Our lead article this week is from Marc Jocum of Global X, exploring Australian banking credit.
Peter Moussa from NAB Private Wealth has written a very good educational article comparing investing in bond ETFs versus the over-the-counter market.
Investment grade, corporate bond credit spreads have tightened, so they are not as attractive as they were. Benoit Anne from MFS Investment Management explains why he still has a positive outlook. There’s some really insightful research in this article and fabulous graphs, it’s well worth a read.
Have a good week!
