Bonds

[Glenorchy]

The IFT350 7.5 year infrastructure bond had the interest rate set at 7.06 - the exchange is still in process so these will list next week.

With Canada cutting rates and the ECB cutting rates 25 bp overnight. I wonder how long it will be before RBNZ follows.

The ANZ is forecasting we get our first cut next Feb. The RBNZ previously indicated Aug 2025 but if the Fed goes sooner i.e Sept then could NZ cut this year - Oct/Nov? Certainly signs of the economy weakening are everywhere.

[Glenorchy]

Mercury are going to be offering capital bonds. Interest rate is expected to be above 6%

The bonds will have a set 30 year maturity date but with an election date after 5 or 6 years and they're widely expected to repay on the election date.

[kiwi2007]

Those of use buying bonds over the last 18 months should be happy with the decline in swap rates today 

[Basil]

Interestingly I was watching Jim Cramer the other day on CNBC and he talked all about age-appropriate investing in relation to portfolio construction pertaining to bonds.  In your in your 60's he reckoned 50% of your listed net worth should be in bonds, rising to 60% in your 70's and 70% in your 80's.

I was a bit surprised it was that high, thought more like the classic 60/40 portfolio, (60% shares, 40% bonds) would be most appropriate in your 60's.  Wonder if some of that 50% shouldn't be in quasi bonds like REITS and Gentailier shares? Anyway, for what its worth, I just thought I'd mention it.

[BlackPeter]

Interestingly I was watching Jim Cramer the other day on CNBC and he talked all about age-appropriate investing in relation to portfolio construction pertaining to bonds.  In your in your 60's he reckoned 50% of your listed net worth should be in bonds, rising to 60% in your 70's and 70% in your 80's.

I was a bit surprised it was that high, thought more like the classic 60/40 portfolio, (60% shares, 40% bonds) would be most appropriate in your 60's.  Wonder if some of that 50% shouldn't be in quasi bonds like REITS and Gentailier shares? Anyway, for what its worth, I just thought I'd mention it.

Always a bit sceptical if people create formulas which should be true for everybody of   certain age group. Generalisations are sometimes useful, but always wrong ;

My strategy is to have enough cash / bonds to get through the next bear market (whenever it comes) - and this strategy has not changed since I started investing.

Obviously - somebody with a work income can tolerate a higher risk exposure, but for anybody retired, I don't see why they would need a higher ratio of bonds when they grow older?

[kiwi2007]

Chris Lee:
Recent bond issues have traded at a premium upon listing, continuing a trend seen this year. All new bond issues in 2024 are currently trading at premiums, offering lower yields than the coupon rates.

We have been told many times over the last year that central banks are expected to cut rates. Although this has not come to pass yet, I warn investors that interest rates for new issues in the months ahead might be lower than comparable issues released earlier in the year.

To expect higher interest rates for comparable fixed interest investments than earlier in the year is looking unrealistic.

Underlying rates, such as swap rates, which are added to a margin in the calculation of interest rates for new issues, have slid significantly of late. Expectations of further easing appear to be influencing what returns investors, anticipating lower interest rates, will accept.

Mercury Energy recently issued bonds (MCY070) which included a margin of 2.0% and a 5-year swap rate of 4.42% resulting in an interest rate of 6.42% for the first 5 years of the bondswhen the offer closed on 27 June.

Swap rates have slipped to 4.20% since the rate for the bonds was set and the first day of trading in MCY070 bonds on Friday 12 July saw the bonds trade at a yield as low as 5.88% (pricing the bonds at approximately $10,230 per 10,000).

The one-year swap rate, which is more susceptible to OCR policy, as part of short-term interest rate expectations, has fallen to a hair above 5.0%, a level not seen in 18 months. All NZ swap rates are below 2023 peaks. For context, the one-year swap rate reached a high of 6.04% in May 2023 with all other swap rate durations peaking in October/November 2023.

Many depositors will have noticed that major banks' term deposit rates have fallen. I expect these rates will continue to fall, particularly for shorter terms, as we move closer to the RBNZ cutting the OCR.

An OCR cut should not indicate that interest rates will fall off a cliff but rather that they might soften.

[kiwi2007]

Interestingly I was watching Jim Cramer the other day on CNBC and he talked all about age-appropriate investing in relation to portfolio construction pertaining to bonds.  In your in your 60's he reckoned 50% of your listed net worth should be in bonds, rising to 60% in your 70's and 70% in your 80's.

I was a bit surprised it was that high, thought more like the classic 60/40 portfolio, (60% shares, 40% bonds) would be most appropriate in your 60's.  Wonder if some of that 50% shouldn't be in quasi bonds like REITS and Gentailier shares? Anyway, for what its worth, I just thought I'd mention it.

Was the go to formulae for many, many years but these days, with people living much longer, late 70's rather than 60's may be more 'appropriate'.  (Not really a figure for individual active investors but plenty of funds seem to aim that way ).

The 100-minus-your-age rule should now be closer to 120 minus your age..

[kiwi2007]

Bank of New Zealand (BNZ) has announced that it is considering making an offer of perpetual preference shares (PPS).

The PPS are expected to constitute Additional Tier 1 Capital for BNZ's regulatory capital requirements and to have a credit rating of BBB.

This investment is perpetual, with a likely redemption date in six years' time.

The initial six-year distribution rate has not been announced, but based on comparable market rates, we are expecting a rate of around 7.00% per annum.

BNZ will be paying the transaction costs on this offer.

[Glenorchy]

Those BNZ PPS look pretty attractive considering where we are in the rate cycle.

[kiwi2007]

Those BNZ PPS look pretty attractive considering where we are in the rate cycle.

I see they're now saying nearer 6.9% rather than 7% - unsurprising really as yields on existing bonds have fallen markedly recently.

[Glenorchy]

Just announced the rate set for the BNZ PPS is 7.28%

[kiwi2007]

https://www.ft.com/content/076c1d75-a1dc-4c40-99fb-70bc061b5aa3

   Investors are piling back into bonds as recession replaces inflation as markets' main fear, and fixed income proves its worth as a hedge against the recent stock market chaos......

...... "I think bonds are back," Bhatia said. "But the thing that will support credit at these levels will be the concept that the Fed will react quickly and get the policy rate down" if signs of weakness persist.

[kiwi2007]

Chris Lee - Bond liquidity has fallen, as traders swooped in to acquire any and all available bonds. Even bonds issued as recently as a month ago – like the Mercury 6.42% bond (MCY070) – are now trading at significant premiums. BNZ's recent Perpetual Preference Share issue, priced at 7.28%, lists this Thursday.

Swap rates also plunged to fresh lows, with the five-year swap rate now at its lowest point in two years. This has resulted in many long-term senior bonds now being priced below a 5.00% yield. Investors will need to set their expectations accordingly.

[Glenorchy]

Westpac have announced to the market that they are considering an offer of PPS. Interest rate would likely be in the high 6, low 7% range.

https://www.nzx.com/announcements/436841

[Glenorchy]

The interest rate on the Westpac PPS has been set at 7.1% (margin of 3.5%) they had a huge uptake issuing 375 million.