Time is running out for old-style hybrids
Old-style convertible note ANZPA is set to be called on 15 Dec. Assuming it is called – this is the end for another one of the ever dwindling old-style Tier II securities, which had lower volatility than the new style of hybrids.
With ongoing equity volatility expected by market commentators, advisers looking for a capital-stable fixed-income solution on ASX should consider either Floating Rate XTB or Fixed Rate XTBs.
Why Floating Rate XTBs?
- Quarterly income stream
- Very low price volatility (0.2% to 0.3% over the longer term)
- Interest rate adjusts on a quarterly basis, linked to 3-month BBSW
- Alternative to ‘at-call’ cash with yield pick-up over cash options
Why Fixed Rate XTBs?
- Semi-annual income stream
- Low price volatility (2% to 3% over the longer term)
- Lock in a fixed yield at purchase
- Alternative to TDs with yield pick-up over many TDs
- More capital stable than old style Tier II securities, and much more stable than new style hybrids
Floating Rate XTBs or Fixed Rate XTBs as a rollover option
The decision on whether to select floating rate or fixed rate can be driven by:
- Investor and adviser rate expectations,
- A preference for locking in a total return at maturity with higher yields (fixed-rate), or
- A preference for the very low volatility of floating rate senior securities.
With the market expecting further rate cuts, the trend and feedback from XTB clients is to lock in a yield with fixed-rate XTBs (92% of XTBs traded in July 2016).
ANZPA vs Floating Rate XTB vs Fixed Rate XTB
|Issuer||ANZ||Bank of Queensland||Qantas|
|Seniority||Old-style Tier II||Senior Unsecured||Senior Unsecured|
|Type and Coupon Rate/Yield||Floating
(3M BBSW + 3.10%)
(3M BBSW + 1.00%)
Running Yld: 6.36%
|Call Date/Maturity||13 DEC 2016||12 JUN 2018||11 JUN 2021|
|Volatility||3.3% p.a.||0.4% p.a.||3.8% p.a.|
|Floating Rate Notes¹||Fixed Rate Bonds²||Hybrids³||Equities*|