Investing

ANZPA 15 DEC 16 Rollover options

  • 16.AUG.2016
  • Richard Murphy,  XTB

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

ASX CODE ANZPA YTMF03 YTMQF2
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%)
Floating
(3M BBSW + 1.00%)
Fixed
YTM: 3.78%
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*
Volatility (p.a.) 0.2% 2.1% 2.6% 16.0%
Return (p.a.) 3.09% 5.45% 3.26% 4.73%
¹ Bloomberg AudBond Credit FRN Index
² Bloomberg AudBond Credit Index
³ Hybrid portfolio
* ASX 200 Accumulation Index
Source: Australian Corporate Bond Company and Bloomberg
Time period: 12 AUG 2014 to 12 AUG 2016

Events

  • 27Oct 2017

    YTMQF1: QANTAS 6.50% 27 APR 2020

    This is the coupon date

  • 28Oct 2017

    YTMAZJ: AURIZON 5.75% 28 OCT 2020

    This is the coupon date

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