Bonds

[kiwi2007]

......."Investors expect bonds to outperform equities in 2024......."

1.  A much better backdrop for bond returns (redux)

If this headline looks familiar, then it should. It featured in last year's piece. Back then we had the view that 2023 should be a better year for bond returns owing to higher running yields, inflation moderating and demand softening.  While bonds have delivered positive returns this year, with the Bloomberg NZBond Composite 0 year+ Index up almost 5% and the Bloomberg Global Aggregate NZD Hedged Index up around 3% to the end of November, we think the story has much further to run in 2024, particularly in New Zealand where we are seeing signs of monetary policy working and ample room for further pricing in of rate cuts. Globally the driver could be a move away from the consensus "soft landing" narrative that is currently persisting. One thing we believe is the attractiveness of running yields of 5.1% for the Bloomberg NZBond Composite 0 year+ Index and 5.2% for the Bloomberg Global Aggregate NZD Hedged Index. Importantly, bonds are at yield levels where they have plenty of room to rally if a non-inflationary macroeconomic shock were to occur.

The large pipeline of bond issuance, however, may cause some volatility. In New Zealand, the Government needs to raise almost NZ$40bn in 2024 via the bond market, more than four times the pre-COVID annual average. In the US, the independent US Congressional Budget Office forecasts the US Government to run increasingly large fiscal deficits for the next decade, taking debt to 120% of GDP, from 100% currently. Increasing net interest outlays are a key contributor, along with larger-than-sustainable primary deficits. The worrying thing for markets is that this outlook for US fiscal deterioration sits in the context of below-average term premia and quantitative tightening from global central banks. As such, many analysts don't think these challenging dynamics are fully reflected in current yields........."

https://www.interest.co.nz/investing/125820/harbour-asset-managements-hamish-pepper-and-chris-di-leva-look-ahead-2024-keeping

[kiwi2007]

It's been a quiet couple of months but companies are about to start issuing new bonds. Here's the first;

SBS Bank has announced plans to issue a new subordinated bond, with further details to be announced next week. While the interest rate is not yet known, based on current market conditions, we expect it to offer above 6.50% per annum.

The bonds will have a set maturity date of 10.5 years; however, SBS Bank will have the option of repaying these bonds under certain conditions after 5.5 years. 

SBS will cover the transaction costs for this offer.

[Glenorchy]

The SBS Bond offer closes on the 15th and it's estimated to be offering in the region of 7% as swap rates have moved up a little. It's subordinated so I am in 2 minds about it but then my Heartland subordinated "junk" bonds have performed well so far so I might give this a nibble but then I was able to get 7.08% for senior unsubordinated infratil bonds recently so perhaps I should be patient as something better may come along.

[Apollo]

It's been a quiet couple of months but companies are about to start issuing new bonds. Here's the first;

SBS Bank has announced plans to issue a new subordinated bond, with further details to be announced next week. While the interest rate is not yet known, based on current market conditions, we expect it to offer above 6.50% per annum.

The bonds will have a set maturity date of 10.5 years; however, SBS Bank will have the option of repaying these bonds under certain conditions after 5.5 years. 

SBS will cover the transaction costs for this offer.

Would this be a reasonable offer? You are subordinated to the redeemable shares so I assume you would get nothing in a liquidation. I suppose you need to have faith in their loan book. Also if interest rates fall they can buy back the bonds so you will be reinvesting in a low interest rate environment. If interest rates climb you are in for 10.5yrs. These are supposed to be questions rather than statements but I have read something that came up as an offer document. 7% I guess there are not a lot of places to get 7% atm. Where do you find up coming bond offers?

[Glenorchy]

Where do you find up coming bond offers?

Under announcements on the NZDX.

Speaking of which here is one they posted today

Wellington International Airport (WIA) has announced that it plans to issue a new senior bond maturing in 6.5 years' time.

The initial interest rate has not been announced but based on its credit rating of BBB, it will probably be in the 5.75% - 6.00% range.

It is anticipated that WIA will not cover the transaction costs associated with this offer. This will be confirmed once the offer docs are out.

[kiwi2007]

SBS Bank's subordinated bond offer had its margin range announced today of between 3.0% and 3.2%. And they said the interest rate for the first five and a half years until the First Optional Redemption Date will be no less than the minimum interest rate of 7.35% pa.

[Glenorchy]

SBS ended up at 7.62% as swaps have rallied.

WIA has released it's indicative term sheet today, the interest rate is a minimum of 5.8% - it's here term sheet



Summerset have announced Summerset Group Holdings Limited (Summerset) is considering making an offer of up to NZ$75 million (with the ability to accept up to an additional NZ$50 million of oversubscriptions at Summerset's discretion) of six year, fixed rate bonds to New Zealand investors. The bonds will be unsubordinated obligations of Summerset, and will have the benefit of a guarantee and security package provided by the Summerset guaranteeing group.

It is expected that full details of the offer will be released in the week beginning 26 February 2024, when the offer is scheduled to open. Interest Rate probably in the 6 - 6.5% range

[Glenorchy]

Wellington International Airport interest rate was set at 6.02

Summerset new bond Sum050 had it's interest rate set at 6.43

Next up their is a bond offer coming from Spark Finance

[kiwi2007]

ANZ Perpetual Preference Share (PPS) bonds. Min rate 7.5%  and they'll pay brokerage.

[kiwi2007]

ANZ Perpetual Preference Share (PPS) bonds. Min rate 7.5%  and they'll pay brokerage.

And you get imputation credits too? Is that correct?

[kiwi2007]

Rate set at 7.6%

[kiwi2007]

Meridian Energy Limited (Meridian) confirmed it is making an offer of up to $200 million (with the ability to accept oversubscriptions of up to an additional $100 million) of 6-year fixed rate senior green bonds. Indicative around 5.30%.

[Glenorchy]

And you get imputation credits too? Is that correct?

Yes pretty sure they're fully imputed based on the PDS. Got a small allocation of these as I aready hold ordinary shares so constrained by my approach to diversification.

[kiwi2007]

Auckland Airport Senior Bond Offer

Auckland Airport (AIA) has announced that it plans to issue a new 6.5-year Senior Bond.

The interest rate has not been set but will likely be in the vicinity of 5.50% with a minimum investment size of $10,000.

AIA has a strong credit rating of A-.

AIA will not be paying the transaction costs for this offer.

[Glenorchy]

Infratil just sent this out:

Infratil Considers Infrastructure Bond Offer
Infratil Limited (Infratil) is considering making an offer of 7½ year unsecured, unsubordinated, fixed rate infrastructure bonds maturing on 17 December 2031 (New Bonds) to New Zealand investors.

The offer will likely comprise two separate parts:
A "Firm Offer" expected to open on 27 May 2024, which will be reserved for New Zealand clients of the Joint Lead Managers, approved financial intermediaries and other primary market participants invited to participate in the bookbuild. The Firm Offer is expected to close at 11.00am on 30 May 2024.

An "Exchange Offer" expected to open on 31 May 2024 (following the Firm Offer), under which all New Zealand resident holders of the IFT230 bonds that mature on 15 June 2024 (2024 Bonds) will have the opportunity to exchange some or all of their maturing 2024 Bonds for New Bonds. The Exchange Offer is expected to close at 5.00pm on 12 June 2024.

Investors can register their interest in the offer by contacting a Joint Lead Manager or their usual financial adviser. Indications of interest will not constitute an obligation or commitment of any kind.