Soaring yield on Sky TV bonds a sign of strange times

Monday, 6 April 2020

Low volumes mean too much shouldn't be read into the price that Sky bonds have been trading at, but it has still turned heads.

The bond market is throwing up some unusual opportunities for investors who are brave enough to punt that businesses will survive the coronavirus pandemic.

$100 million of bonds originally issued by Sky Television in 2014, and which are due to be redeemed next year, traded as low as 53 cents in the dollar on Monday, according to Hamilton Hindin Greene broker Grant Davies.

Investors buying at that price could almost double their money if Sky was able to refinance or otherwise pay back the debt when it matures in March.

The yield on Sky's bonds has since dropped back a little to 61 per cent on Monday afternoon, with their price rising to 62c in the dollar.

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But the yields were 'certainly not good reading in terms of what it could mean for Sky', Davies said.

Trading volumes were very low, meaning the high yields couldn't necessarily be taken as an indication as to what institutional investors were feeling, he said.

'In this market there is just so much uncertainty and what you are looking at is the opinion of a few people.

'On the other side though, if anyone was really convinced they were going to be around, you could argue it would be easy money for an institution or someone who should know, to make.'

While the yield on the Sky bonds was 'definitely an outlier', NZ Post bonds were yielding 6 per cent and Air New Zealand's bond yield was about 8.5 per cent, while Fletcher Buildings' yield had been ranging between 6.5 per cent and 7.5 per cent, he said.

'At the moment it seems the institutions that would usually be playing in that market aren't around that much,' Davies said.