JP Morgan Chase 7.0% in Australian Dollar Domination
Corporate Bond Australian Dollar
JP Morgan Australian Dollar bonds offer about double the current income of similar US denominated bonds, plus providing diversification away from a heavily debt burdened US economy to one of the World’s more fiscally conservative countries — Australia.
Current US Debt woes
The US Government avoided a shutdown and announced $38 billion in spending cuts. Deficits are the biggest long-term worry of top U.S. economists, according to a recent survey. The Federal deficit is expected to jump to $1.4 trillion in the fiscal year ending in September. In the November survey, economists had forecast a $1.1 trillion deficit. Fiscal and monetary policy remain in poor condition. Investors are worried about the long-term value of the US Dollar.
Fixed income investors are also frustrated with yields that are currently being offered. CDs are being rolled over at 1 to 2% or into very low shorter term bonds. Investors are even more frustrated when they combine the very low rates, with the continued realization that the dollar has been on a long term decline causing a reduction in purchasing power. (A simple example of lower purchasing power is the price of gasoline). Thus, fixed income investors are seeking both higher yields and protection from the potential of continuous loss in dollar based purchasing power.
Durig Capital has been searching the globe to find yield and diversification. Investors may want to consider investing in foreign fixed income for a number of reasons:
1. Foreign issues offer a way to diversify out of US Dollar denominated debt.
2. The bonds have higher yields for bonds maturing at the same time compared similar
credit rated US corporate bonds.
3. The Australian Dollar could potentially appreciate against the US Dollar allowing
principal appreciation and/or losses.
The Australian economy grew solidly in the fourth quarter of 2010 up 0.7%, bucking the headwinds of rising interest rates, a still fragile global backdrop and devastating floods that inundated the coal-rich state of Queensland in December and January. The hit to exports as a result of the disasters could reduce tax revenues and cut around a percentage point from first-quarter growth. A hit to growth on that scale could result in a first-quarter contraction, a rare event in an economy that hasn’t experienced a recession in 20 years. The Treasury department forecast Australia would grow at 3.5% over the year and return an underlying deficit of 41.5 billion Australian dollars. Australia’s central bank left interest rates firmly on hold for a fifth straight month in April. Inflation isn’t a problem for now as the Australian dollar tops levels not seen since the early 1980s and market forces keep prices low.
Australia based bonds have provided significant returns of both higher income and currency appreciation. The JPMorgan Chase Australian Denominated bonds have a good yield compared to our past syndication of Australian Corporate bonds Rates, News and Currency Charts here and Australia Government Bonds Rates, News, and Currency Charts here.
About the Issuer
JPMorgan Chase is a leading global financial services firm with assets of $2.1 trillion and operations in more than 60 countries. The firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management and private equity. JPMorgan was not as deeply exposed to the mortgage market during the 2008 financial crisis as many of their rivals. The company absorbed both Bear Stearns and Washington Mutual in deals brokered and supported by the federal government. The two moves allowed it to leapfrog many of their rivals in the investment banking rankings and expand its consumer lending franchise significantly. The bank’s performance as it emerged from the credit crisis has earned a pinnacle position in American finance. They currently have a stable rating (Aa3, A+), see our Ratings Guide.
JP Morgan Financials
JPMorgan Chase reported fourth-quarter 2010 net income of $4.8 billion, up 47% from prior year, and full-year 2010 net income of $17.4 billion, up 48% over the prior year. Revenue on a managed basis increased 5.9% to $26.72 billion, above the $24.37 billion analysts forecast.
The company has shown confidence in its’ future by raising its dividend $0.20 to $0.25 a share and authorizing a new $15 billion multi-year stock repurchase program. Tier 1 common capital ratio, a measure of financial strength, rose to 9.8% from 9.5% at the end of the third quarter. JP Morgan Chase has $761.69 billion in cash on its’ balance sheet which is roughly equal to their debt. JP Morgan currently has enough cash on hand, if needed, to pay off all long term debt.
|JP Morgan Bond Quotes in:||Yield||Maturity||Ratings||Cusip|
|US Denominated||3.455||03/16/2016||Aa3, A+||46625HHW3|
|Australia Dollar||7.00||03/01/2016||Aa3, A+||U4806KAC4|
The above yield on the comparable bonds with the same underlying default risk is about double the income utilizing the Australian dollar dominated bond issue. JP Morgan Australian bonds are investment grade but they have much higher yield than current High Yield or (Junk) Bonds offerings.
JP Morgan Chase is a US company issuing bonds in Australian Dollars. The Australian currency risk could and will affect the returns of these bonds and possibly in a negative way. This issue will expose investors to the Australian economy. Devastating floods have hurt exports and the economy recently, but the currency remains strong against the US Dollar. The Australian economy has not experienced a recession in the past 20 years. Australia ranks number 3 for economic freedom according to surveys while the US ranks number 9. A higher ranking usually translates into more economic prosperity.
JP Morgan continues to battle with the aftermath of the 2008 financial crises. The integration of Bear Sterns and Washington Mutual remain challenges for the company. Business loan growth remains modest and the rate at which borrowers are tapping their lines of credit remains low. Wall Street’s component to earnings was down from the prior year. Offsetting some of the improvements in credit were increased concerns about litigation, especially legal fights revolving around mortgages. JP Morgan said it has $3 billion in reserves for demands by investors that it repurchase soured mortgage-backed securities.
Many foreign currency bonds like Australia often require a larger single bond purchase. To circumvent this constraint, we are combining potential bond buyers into a larger unit purchase. In our previous syndicates, we were able to facilitate $10,000 US Dollar purchases and should be able to do the same for this Australian bond. If you want to receive updates about our next high income world syndicate, please contact us at Durig Capital.
There are many benefits to owning foreign denominated bonds. The JP Morgan bonds in Australian Dollars provide a far superior current income. We believe this also provides a significant hedge, reducing client’s exposure against the continued weakening of the US Dollar due to fiscal and monetary policy make the Australian Dollar attractive. The combination of providing our clients significantly higher yield plus protecting our clients against possible dollar declines moving from an overburdened currency debt structure to one of the World’s top tier fiscally conservative countries is why are currently adding this bond to our Foreign and World Fixed Income holdings.
Durig Capital clients currently own these bonds.
To know more about this Investment call our specialist at 971-327-8847
On a scale of A+ to F
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