Last week the US Treasury sold USD12bn in 30-year bonds to a range of investors, most notably Central Banks. Demand seemed healthy for these assets as they were oversubscribed by roughly 2.4x. They provide a yield of 2.47% which no doubt grabbed investors’ attention. Speculation surrounding Federal Reserve policy has seen Treasury 30 year yields reach rise 19bp within the past month. Is now the time to lock into a 30 year cash flow with expectations leaning towards a rate hike before the end of 2016? December looks a likely timeframe to let November's election results settle.
Australia is preparing its first 30-year bond, which is expected to receive a warm response. With an expected yield of over 3%, investors will be eyeing this is a real alternative to the US 30y. Other Sovereign 30 year notes from developed economies
are yielding conservatively with Germany at 0.65% and Japan's
What are the recent 30+ year trades?
Already this month we've seen close to 20 SSA 30 year instruments issued, primarily in the supranational arena. The majority of these notes are denominated in USD with a couple of exceptions including the NWB EUR25m and the EIB EUR500m Bond. In the Corporate Sector, Dollar issuances once again dominate this month so far, despite a 32-year GBP300m transaction, issued by Gatwick Funding. Pepsi included a 30-year USD1bn tranche as part of a full yield curve deal. Information on 30 year Issuers can be obtained via the CMD portal Issuer Search tool.
What does the market look like?
Overall, 30-year+ instrument outstanding’s across all sectors has risen from USD5.75tn (17/10/15) to USD6.18tn (17/10/16). That is 7.47% growth in 12 months, with increases every quarter. This data was replicated with the CMD portal Data Sheet, with the filters explained below. Fixed Income Investors looking for yield have been shifting their vision towards emerging markets or longer maturing notes to achieve respectable returns. The other alternative is to seek out entities with less reputable credit ratings although that depends on any restrictions a fund may have or simply how risk averse you are. With the Fed likely to raise interest rates in the near future, perhaps the purchase of longer dated bonds can wait a little longer...
30 year+ Bond/MTN Outstanding’s Data Sheet Search
Report Type: By Security Type
Report Output Type: Outstanding
Report Currency: USD
Start Date: 17/10/15
End Date: 17/10/2016
Instrument Type: Bond; MTN; Note