Short-Term Securities |
|
On this page Money Market Deposits FIIG is very active and successful in sourcing money market deposit rates or yields for its clients. This is a part of the yield curve that most investors are very familiar with but are certainly not maximising their returns for one reason or another. In most cases, if not all, FIIG can provide the investor with a better return for this type of investment given predetermined investment criteria. Facilities of this type are offered by every APRA (Australian Prudential Regulatory Authority) approved deposit-taking institution, of which there are many. Each institution has its own credit worthiness, which needs to be addressed before committing funds to this type of investment. It should also be noted that fixed term money market deposits are not transferable and as such are not easy to exit prior to maturity. Some of the more innovative banks will offer extendable deposits or callable deposits as incentives for investors. Bank Accepted Bills and Negotiable Certificates of Deposit An Australian Bank can issue these securities. The yields at which they are available are very similar to money market deposits, the key difference being that they are transferable. NCDs and Bank bills are very liquid instruments, which give investors the flexibility to exit prior to maturity. These securities are also available in odd parcel size. Most of the regional banks will issue Negotiable Certificates of Deposit down to $50,000 face value. Each day AFMA (Australian Financial Markets Association) issue the benchmark yields for bank bills from 30-day maturity out to 180-day maturity. These benchmark rates (referred to as BBSW) are used to set pricing for deposit rates and a number of other interest rate products. Promissory Notes There is a broader scope of issuers of this product including some government authorities and corporations throughout Australia. There is also a very active and liquid secondary market in these assets. FIIG Securities Ltd. has access to these issues. Floating Rate Notes Issuers in this market include Corporations/Banks, semi governments, and the Commonwealth government. This asset can provide greater returns in the short part of the yield curve. FRNs may have maturity out to ten years but because the investment rate is determined periodically (for example every 90 days) the asset has the risk profile of a 90-day deposit if held to maturity. The interesting thing about FRNs is that they offer a return above bank bill (BBSW) for bank risk. This is due to the dynamics of the credit yield curve as we move out in terms of maturity. There has been a recent spate of issuance of what has been called Income securities. Each of these issues is different in their structure but they are all similar in that they all have no maturity. These assets are a more complicated version of the FRN and are commonly referred to, as perpetual floating rate notes but the fundamental similarity is that they offer a return over 90-day bank bills.v There are also significant differences in terms of repayment obligations from the issuers and investors should always be mindful of where their investment ranks on the capital curve of an issuer. Repurchase Agreements Most fixed income issues have an active stock borrowing and lending program. Lending out securities when a bond is in short supply in the market place can enhance fixed income positions. Lending or borrowing stock can also be used to leverage an investment or position. FIIG keeps a close eye on the availability of most of the benchmark lines of bonds in the market place, and can advise holders of those securities, when to take advantage of attractive fees resulting from short supply in these issues. By keeping registers of holdings of investors, FIIG can pool the lines of stock and lend or borrow them at favourable levels for our clients. Treasury Notes Issued by the Treasury of Australia through the Reserve Bank. In terms of security this is regarded as the most risk free asset obtainable in this asset class in Australia. These are very actively traded amongst the banks and have the advantages of being transferable and are able to be split up into smaller parcels. |