New XTBs (Exchange Traded Bond Units) – ‘Floaters’ now available on ASX

Richard Murphy

Richard Murphy

The Australian Corporate Bond Company (ACBC) has expanded its range of ASX-listed XTBs with the launch of six XTBs over Senior Floating Rate Notes (FRNs, or ‘Floaters’), offering retail investors access to a largely inaccessible part of the corporate bond market.

The six Floaters are the first XTBs to be launched over bank bonds. The bonds have been issued by AMP, BoQ (two XTBs), NAB (two XTBs), and Suncorp-Metway. The indicative Current Yields of these new XTBs ranged between 2.96% and 3.32% on 10 November 2015.

ACBC CEO and co-founder Richard Murphy said he was pleased to be broadening the range of corporate bond opportunities available to retail investors.

“We are excited about the potential opportunities these new XTBs can bring. XTB Floaters are high quality, capital stable instruments that share many of the attributes of cash investments and the benefits of trading on ASX,” he said.

The defining characteristic of Floaters is that the coupon moves up and down over time in line with a specified benchmark rate, such as BBSW (Bank Bill Swap Rate). While a rise in interest rates may be associated with a fall in the price of a fixed coupon bond, the holder of a Floater would benefit from the corresponding increase in the coupon, and so the price of Floaters are not as sensitive to interest rate changes. In all other respects, Floaters rank alongside other senior bonds and ahead of any subordinated or hybrid securities.

Among other features, Floaters pay coupons quarterly until maturity, which may appeal to investors looking for investments with cash flow management qualities. Floaters have low capital volatility and should trade close to the face value for the life of the bond, with the available income changing with market interest rate movements.

Floaters share many of the attributes of cash investments (such as capital stability), an asset class held by almost all investors in Australia. Floaters should typically deliver a higher return than ‘at-call’ cash accounts over time. In addition, Floaters have advantages relative to term deposits in that they can be sold at any time and can be seen as an ASX traded alternative.

The announcement follows the release of the second tranche of XTBs earlier this month, including higher yielding bonds such as Qantas, and brings the total XTB range to 33. A further tranche of fixed rate XTBs can be expected in the coming weeks.

XTBs offer investors simple ASX-traded fixed income securities. Each XTB provides access to the returns of an individual underlying senior corporate bond, with a low minimum investment amount. XTBs give investors access to an asset class on ASX previously only available in opaque, Over-The-Counter (OTC) wholesale markets.

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