International Bonds Weekly : The Kangaroo Report

20/06/2014 by

Investors cannot get enough of AUD but Australian companies are rushing out to issue in Europe where it is cheaper.

SGSP Australia to Sell EU500m 8Y Bonds, IPT MS +90bps Area (8Y 1.23%+0.90% = 2.13%)
Expected Ratings: Baa1/BBB+
Coupon Steps: 25bps per rating agency, per notch below Baa1/BBB+; [capped at 2%]
Reg S, TEFRA D, bearer
– SGSP (Australia) Assets Pty Ltd (SGSPAA) is a subsidiary of State Grid International Development Australia Investment Company Limited and Singapore Power International Pte Ltd

In the latest Citi Economic Surprise Index rankings, Australia is near bottom (but above Canada, Europe, Switzerland and Sweden) for all the countries and regions that Citi covers, indicating that economic numbers have been disappointing.

The currency’s strength therein lies only in the manipulated weakness by the major central banks of their own currencies.

Although the AUD dollar had a brief respite on Tuesday after the release of the RBA minutes which signaled that interest rates in Australia will stay low for an extended period, it was no match for the Fed induced strength on Thursday morning for the currency to rebound in more than a meaningful way against the USD.

Bond prices racked up nice gains after the RBA minutes and the outlook remains hazy with some speculation on the negative spillover effects of the missing commodities in China which can be a new can of worms for them and thus, demand.

Australia in Brief (prices and rates indicative and unverified)

Going ahead the currency is likely to be sustained by M&A talk and China until the next RBA on 1 July. Boring… and we shall probably see the AUD fall off the carry trades radar for the time being and a pull back and the bonds will whip along with US rates.

Some unverified prices of Kangaroo bonds issued this year.