G.E. Capital Australian Dollar denominated bonds offer about 5 times the current income of similar very short 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
As the US Government fights with itself over the debt ceiling, as important as it is, it is only the beginning of a more fundamental, deeper debate on the size and scope of our government. Deficits are the biggest long-term worry of top U.S. economists, according to a recent survey (The survey of 47 top economists by the National Association of Business Economics) and many believe high deficits and foreign creditors are also the national security threat. The Federal deficit is expected to jump to $1.4 trillion in the fiscal year ending in September. In this environment, many of our clients are worried about the long-term value of the US Dollar.
Fixed income investors are also frustrated with low yields that are currently being offered. Recently, G.E. Capital issued CD’s with an extended maturity and a shockingly low yield of 0.40%. Investors are realizing that the combination of low rates and long term decline of the dollar is causing a reduction in purchasing power. 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:
- Foreign issues offer a way to diversify out of US Dollar denominated debt.
- Non-Dollar denominated bonds have higher yields than US dollar based bonds of similar yield, maturity and rating classes.
- The Australian Dollar could potentially appreciate against the US Dollar allowing principal appreciation and/or losses.
Stanford University rated the Australian economy number #1 on its global Sovereign Fiscal Responsibility Index. This recognition help highlight how much better Australia’s financial condition is compared to #28 ranked (out of 34) United States, which came in only four points above a defaulted Iceland.
Australia based bonds have provided significant returns of both higher income and currency appreciation. The G.E. Australian Dollar denominated bonds have a very good yield for such a short maturity compared to many of Australian bonds The current exchange rate is based on a US Dollar to Australian Dollar exchange rate is 1.082
About the Issuer
G.E. Capital provides commercial lending and leasing, as well as a range of financial services for health care, media, communications, entertainment, consumers, real estate, and aviation. GE Capital focuses primarily on loans and leases that it underwrites to hold on its own balance sheet rather than on generating fees by originating loans and leases, then selling them to third parties. Most of GE Capital’s commercial loans are to small and mid-sized companies, spread across multiple industries and geographies and secured by tangible assets. More than 70% of GE Capital’s loans are under $100 million. G.E. Capital had 60,000+ employees worldwide, operating in more than 55 countries, G.E. Capital currently have a stable rating (Aa2, AA+), see our Ratings Guide.
G.E. Capital continues to battle with the aftermath of the 2008 financial crises hitting the middle financial market they serve, but has shown good strength posting $1.8 billion in profit for first quarter of 2011.
G.E. forecasts that the company’s profit growth should accelerate in the second half of 2011 and all of 2012 as the company emerges from recession with a simpler group of businesses. With the improved profits, G.E. announced that they will increase its dividend. The company’s Chairman and Chief Executive Jeff Immelt called the latest dividend increase a show of confidence in G.E.’s outlook but said the company aims to eventually return to its pre-recession tradition of predictable, annual increases.
|5.15 %||02/012/2012||Aa2/ AA+||Q39775MB6|
|1.04 %||01/08/2013||Aa2/ AA+||36962G4H4|
|US Certificate of Deposit||0.40 %||4/13/2012||FDIC Insured||36161NJY5|
The above yield on the comparable bonds and Cd’s with the same G.E. Capital underlying issuer, realizing the current yield is about 5 times higher, even after realizing the Australian dollar dominated bond are also the shortest maturity on the list above. G.E. Capital Australian bonds are investment grade but have a high yield for a maturity under a year.
G.E. is a US company issuing bonds from United Kingdom 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 very 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.
GE Capital continues to battle with the aftermath of the 2008 financial crises hitting hard the middle financial market they serve, but G.E. has show good strength showing $1.8 billion in profit for first quarter of 2011. They have reshaped their business, while reducing their exposure to GE Capital. The GE Capital group appeared to be the focal point in the GE stock market decline in 2007-8.
Many people ask, how do I invest in Australian Corporate bonds? With most firms it often require an institutional sized single bond purchase. To circumvent this constraint and allow greater diversification, we at Durig Capital combine world bond buyers into a larger institutional sized purchase. In our previous syndicates, we were able to facilitate purchases as low as $10,000 US Dollar and should be able to do the same for your interest.
There are many benefits to owning foreign denominated bonds. GE Capital 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, and moving from a currency with an overburdened 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.
Disclosure: Durig Capital clients currently own these GE bonds.
To know more about this GE bond call our fixed income specialist at 971-327-8847