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How do you get the yield on the SUNPI?

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Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.

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Question asked 04/12/2021

How do you get the yield on the SUNPI?

Thanks James as always for your informative daily ideas, Could you clarify the yield to first call Calculations on hybrids especially the SUNPI quoted in today’s report. The rate for sunpi is 2.9% plus bbsw for a total currently 2.9155%pa which includes the fr cr. How do you then get it up to 4.36% Y.T.ist call? I’m not saying you are wrong. Just interested. Do they take into account predicted bbsw increases from now to first call? If so it’s a manipulated figure and really fair Anyway thanks again

Cheers

Marvin

Answer

Hi Marvin,

Yes, the projected yield to first call prices in the projected rate increased from now until first call date which is the typical way of pricing a floating rate security. Below is a similar chart of the markets current pricing of RBA interest rates, a topic we often talk of. You can see from the below that there are more than 3 rate hikes priced in until the end of 2022 with the cash rate expected to be the 0.90% by then. Importantly, this shows why we are only holding floating rate securities (hybrids) or bond strategies that take away duration risk like the XARO.

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