#Aaa goodtimes full
10y AAA is at about 49bp within what we expect to be a 35–55bp range (see page 2 for full expected ranges). At the moment, and despite some tightening over the last month, semi spreads to bond remain toward the upper end of our expected trading ranges. Our first foray on this front was a TCV Oct-28s EFP narrower entered in late June, followed by a NSWTC May-26s/Feb-30s spread flattener.
#Aaa goodtimes series
So after previously riding the AA+ wave with a series of spread compression trade recommendations centred on QTC and WATC, we have now closed out all of our AA+ risk in favour of AAA paper. Future balance sheets demand has also been boosted by the tweaks to the LCR. Good Times Park is the direct result of the generosity of James (J.R.) Wordsworth and the work of Bill Bohince and Bob Barrett who oversaw and shouldered the. Yield enhancement has already proved a powerful supportive theme so far this year, and with plenty more rate cuts likely to come globally, this will keep downward pressure on semi spreads. The demand picture has also improved lately, supporting our view that semi spreads can move tighter. NSW and VIC also have more fiscal headroom in the event of operating balance deterioration, with greater leeway to cut or delay their significant capex tasks should they need to preserve budget metrics and/or rein in financing tasks. Heightened macro volatility is another reason to stay in the higher-rated issuers, with any risk-off credit events likely to widen AA+/AAA spreads. Despite a low set of net issuance requirements and commodity royalty tailwinds, AA+ states are unlikely to keep compressing much more to AAA given that pickups are now just 0–5bp across the curve. This switch into AAA for our core long positions is in line with our previously indicated strategy at the start of the year, where we positioned for further AA+/AAA compression until after budgets were unveiled. At the moment, we also favour the long-end given relatively steep spread roll-down.įrom a risk perspective, it makes more sense to own AAA here even if AA+ spreads still hold in well. From this point, though, spreads to bond should drift lower and AA+/AAA spread compression has probably run its course, so we prefer AAA paper for our core long positions.
We had flagged this as a risk for AAA spreads heading into the FY19–20 Budget season. On the supply side, upward revisions to AAA capex-related issuance are now fully out in the open and adequately priced in. Semis also currently look decent value to swap on some parts of the curve, though we are more tactical on this front. February Mardi Gras is usually held 46 days before Easter. The recent tightening of semi-bond spreads has taken some value out, but we would continue to hold longs versus bond and add on backups. The Aussie celebration includes events nationwide, like boat races in Sydney Harbor and aboriginal dance performances, outdoor concerts, festivals and fireworks throughout the country.
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