Fixed Income: Australian Debt Securities Update

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15 July 2011 22 July 2011 A$ MTN Primary Issuance Update The A$ MTN market saw plenty of primary issuance activity this week with almost A$6bn being issued.

1 15 July July 2011 A$ MTN Primary Issuance Update The A$ MTN market saw plenty of primary issuance activity this week with almost A$6bn being issued. Banks, Supranational and Semi Governments took full advantage of improved market sentiment. The majority of issuance occurred later in the week after positive news surrounding the US debt ceiling was announced Tuesday night, followed by the EU s commitment of a further 150bn in aid to Greece on Thursday night. Rabobank reopened the domestic market after a brief pause, issuing A$800m of 5yrs, before CIBC priced A$600m of new 3.5yr covered bonds. CBA acted as lead manager to both transactions. CBA also returned to the A$ MTN market for its second A$ issue of 2011, raising A$2.5bn in a new 5yr FRN (Format) Queensland Treasury Corporation Semi Govt. Rabobank Senior Unsecured KfW Bankengruppe Kangaroo Canadian Imperial Bank of Commerce Covered Bond Commonwealth Bank of Australia Senior Unsecured AOFM CGS Tender AOFM CGS Tender Rating Issue Maturity Amount Coupon Spread to Benchmark AA+/Aa1 AA+/Aa1 Jun-21 A$1.5bn 5.50% ACGB AAA/Aaa AAA/Aaa Jul-16 A$800m BBSW BBSW AAA/Aaa AAA/Aaa May-21 A$550m 6.25% Swap A+/Aa2 AAA/Aaa Jan-15 A$600m 5.25% Swap + 50 AA/Aa2 AA/Aa2 Aug-16 A$2.5bn BBSW BBSW AAA/Aaa AAA/Aaa Apr-20 AAA/Aaa AAA/Aaa Jun-16 A$700m Total Outstanding: A$14.5bn A$700m Total Outstanding: A$11bn 4.50% 4.75% Weighted Average Yield % Weighted Average Yield % Note: Yellow border indicates CBA acted as a Lead Manager on the transaction 2011 Primary Issuance Table Week ending 15 July Year to Date 2010 Year to Date Comparison No. of No. of No. of Sector Volume Volume Volume Volume Transactions Transactions Transactions SSA 1 A$550m 40 A$17.65bn 45 A$21.22bn -A$3.57bn Domestic Banks 1 A$2.5 bn 17 A$19.0bn 25 A$15.31bn +A$3.69bn Foreign Bank/Branches 2 A$1.4bn 23 A$16.2bn 16 A$10.8bn +A$5.4bn Non Bank Financial A$4.24bn 3 A$440m +A$3.8bn Corporate A$4.15bn 13 A$2.41bn +A$1.74bn Semi Government 1 A$1.5bn 9 A$12.3bn 11 A$13.91bn -A$1.61bn Total 5 A$5.95bn 118 A$ A$64.09bn +A$9.45bn Sources: CBA & Bloomberg General Advice Warning: This advice has been prepared without considering your objectives, financial situation or needs. Before acting you should consider its appropriateness to your circumstances. Commonwealth Bank of Australia as a provider of investment, borrowing and other financial services undertakes financial transactions with many corporate entities in Australia. This may include any corporate issuer referred to in this report.

2 Offshore Issues by Australian Borrowers *sizeable issuance only Market Rating () Maturity Amount Coupon Issue Margin National Australia Bank Senior Unsecured USD AA/Aa2 Jul-14 US$1.6bn L + 95 L + 95 Jul-16 US$1bn 3.00% T Australian Rates Market Update Figure 1: 3Y and 10Y Australian Bond Curve 5.10 A fairly quiet day after a strong front end rally on Friday afternoon with rate cut speculation filtering through the market. There was little activity in 3 and 10 yr bonds on Tuesday, the very short end of the curve did however sell-off 3-5bps as rate cut fears eased. Wednesday saw a solid sell off in bonds as US policy makers began to show signs of a consensus regarding the debt ceiling decision. Aussie bond activity was mixed after rumours surrounding a German and French agreement regarding Greek debt Aussie bonds sold off as the EU restored confidence in the market overnight after announcing an aid package of 150bn Friday 15 July 2011 Monday 18 July 2011 Tuesday 19 July 2011 Wednesday 20 July 2011 Thursday 21 July2011 Friday 22 July GACGB10 Index (LHS) GACGB3 Index (RHS) Sources: CBA & Bloomberg After a sizeable rally on Friday afternoon, bond prices continued higher on Monday with fears of a rate cut remaining the market s central focus. In spite of a 91% pass rate, the European bank stress test on Friday night did little to restore market confidence as questions were raised regarding the credibility of criteria and measures used in testing. Tuesday produced little in the way of market activity with most market participants waiting anxiously for a decision regarding the US debt ceiling as well as Wednesday night s EU meeting. The short end of the Aussie bond curve did however sell off 3-5bps as rate cut speculation began to ease. A show of emerging political consensus, along with some positive earnings on Tuesday night, helped US stocks rally. Treasuries also rallied and the 10-30y US curve crunched 7bp tighter, as the market took heart from a possible consensus on the deficit proposal. The Aussie bond market opened on Wednesday morning with a sell-off and flattening of the curve. Noted RBA-watchers, Terry Mcrann and Alan Mitchell, suggested the RBA are very unlikely to ease policy. This news emboldened traders to sell the Aussie front end. The long end was dragged with it, pushing the Aus-US 10y spread back above 200bp. Thursday saw a somewhat turbulent day in markets after headlines began to circulate regarding an agreement between France and Germany over Greek debt concerns. This sparked a sharp sell-off in Aussie bonds shortly after the open, however, confidence began to fade as no details could be found regarding any such agreement. By afternoon, all gains had been reversed with the market closing flat on the day. 2

3 Risk was back on again on Friday after the EU Council decided to commit around 150bn in further aid to Greece s. Moreover, EU policy-makers announced broader measures to limit contagion in the region. Australian Credit Market Update After a shaky start to the week the global economy began to show strong signs of improvement, predominantly driven by the EU s decision to commit a further 150bn in aid to Greece. Improved sentiment was reflected in the large amount of issuance in the A$ MTN market in the later stages of the week, with just under A$6bn raised in the market. The A$ Swap curve finished the week almost 10bps higher across most parts of the curve. Positive news later in the week helped to reduce spreads between swap and government bond curves by almost 3bps in the shorter end of the curve. The curve flattened by a 1bps over the week, after trading in a volatile 10 point range. Ratings News New Rating / Withdrawal Upgrades or Downgrades Credit Watch / Outlook Fitch Ratings has assigned Hong Kong-based Hang Seng Bank Limited (HSB) a Long-Term Foreign Currency Default Rating (IDR) of 'A+' and a Short-Term Foreign Currency IDR of 'F1'. The Outlook is Stable. Fitch Ratings has assigned Hong Kong's Shanghai Commercial Bank Ltd (SCB) a Long-Term Foreign Currency Default Rating (IDR) of 'A-' and Short-Term Foreign Currency IDR of 'F2'. The Outlook is Stable. Moody's has downgraded the debt ratings of seven Portuguese banks. Rating actions were triggered by the downgrade of the rating of the Republic of Portugal to Ba2 from Baa1 last week. Moody's has placed the supported ratings of Bank of New York Mellon and JPMorgan Chase and their subsidiaries under review for possible downgrade. The action was directly related to Moody's placing the US government's Aaa rating on review for possible downgrade on July 13th 2011; the action does not reflect a change to Moody's opinion of the entities' standalone financial strength. 3

4 Spread (bps) Spread (bps) (%) Yield (%) Yield (%) Spread (bps) Fixed Income: Australian Debt Securities Update Swap Rates Figure 2a: Australian Swap Rates Figure 2b: Australian Basis Swap Rates Fri, 08 Jul 11 Fri, 15 Jul 11 Fri, 22 Jul year 7 year 10 year 5 Year 7 Year 10 Year Rates Figure 3a: Australian Rates RBA Cash Rate 90-day Bank Bill 10Y ACGB 180-day Bank Bill 3Y ACGB Figure 3b: CBA Rates Forecasts End period Sep-11 Dec-11 Mar-12 Jun-12 RBA Cash Rate (%) Day Bank Bill (%) Day Bank Bill (%) Year Bond (%) Year Bond (%) Credit Markets Figure 4a: Global CDS Indices Figure 4b: VIX itraxx Australia (LHS) itraxx Asia (ex Japan) (LHS) U.S. CDX (RHS) VIX Australian Banks Figure 5a: Current Major Bank Spreads Rating Maturity Coupon Spread to Swap ANZ AA / Aa2 Feb % +71 CBA AA / Aa2 Jul % +80 CBA AA / Aa2 Feb % +141 NAB AA / Aa2 Sep % +79 WBC AA / Aa2 Aug % +77 WBC AA / Aa2 Feb % +140 Figure 5b: Australian Bank CDS Major Bank Average Senior CDS 4

5 Appendix: Secondary Levels of Recent Transactions Supra/Sov/Agency s Issue Rating Maturity Amount Coupon Issue Margin Secondary Trading Margin Council of Europe Development Bank AAA / Aaa Sep-14 A$125m Total Outstanding: A$1.0bn 5.75% Swap Swap European Investment Bank AAA / Aaa Jun-21 A$500m 6.25% ACGB ACGB European Investment Bank AAA / Aaa Aug-19 A$350m 6.5% ACGB ACGB KfW Bankengruppe AAA / Aaa Jan-16 A$500m Total Outstanding: A$1.5bn 6.00% ACGB ACGB + 78 KfW Bankengruppe AAA / Aaa Feb - 18 A$450m 6.25% ACGB ACGB + 98 KfW Bankengruppe AAA / Aaa May-21 A$450m 6.25% ACGB ACGB Kommunalbanken Norway AAA / Aaa Oct-14 A$200m Total Outstanding: A$1.075bn 6.00% ACGB ACGB + 79 Bank/Holding Co. s Issue Rating Maturity Amount Coupon Issue Margin Secondary Trading Margin National Australia Bank AA/Aa2 Jun-16 A$2.8bn BBSW BBSW BBSW AMP Bank A/A2 Jun-14 A$250m BBSW BBSW BBSW Suncorp Metway A+ / A1 May-14 A$650m BBSW BBSW BBSW BNP Paribas Australia AA / Aa2 May-16 Morgan Stanley A / A2 May-15 Goldman Sachs Group Inc A / A1 Nov-16 A$250m 7.00% Swap Swap A$750m BBSW BBSW BBSW A$250m 7.25% Swap Swap A$250m BBSW BBSW BBSW A$750m 7.75% Swap Swap A$550m BBSW BBSW BBSW Westpac Banking Corporation AA / Aa1 May-16 A$425m 6.75% Swap Swap A$1.825bn BBSW BBSW BBSW Corporate s Issue Rating Maturity Amount Coupon Issue Margin Caterpillar Finance Australia Sydney Airport Finance Company Telstra Corporation Ltd A / A2 Jul-20 Goodman Australia Industrial Fund Secondary Trading Margin A/A2 Jun-13 A$100m BBSW + 75 BBSW + 75 BBSW + 73 BBB / Baa2 Jul-18 A$100m 7.75% Swap Swap A$150m Total Outstanding: A$500m 7.75% Swap Swap BBB May-16 A$175m 7.75% Swap Swap Sources: CBA & Yieldbroker 5

6 Contact Us Fixed Income Origination Sydney Telephone Address Peter Christie Simon Ling Daniel Cassels Rob Kenna Truong Le Danielle Lavars Simon Rutz Andrew Murray Casey de Souza Alex Lucy Katherine Chan Head of Fixed Income Origination & Distribution Head of Retail and Wholesale Origination Executive Manager, FIG Origination Executive Manager, Corporate Origination Executive Manager, Retail Fixed Income Origination Senior Manager, Fixed Income Origination Manager, Fixed Income Origination Manager, Commercial Paper Associate, Fixed Income Origination Analyst, Fixed Income Origination Analyst, Retail Fixed Income Origination New York / Sydney Telephone Address Bill Stevenson Mark Wang Hilary Ward Amy Lung Executive Manager, USPP Fixed Income Origination Executive Manager, USPP Fixed Income Origination Executive Manager, USPP Fixed Income Origination Senior Manager, USPP Fixed Income Origination stevenw@cba.com.au mark.wang@cba.com.au wardhi@cba.com.au amy.lung@cba.com.au London Telephone Address James Hammermaster Sean Rosas Senior Manager, FIG Origination Senior Manager, Fixed Income Origination james.hammermaster@cba.com.au sean.rosas@cba.com.au Singapore Telephone Address Giles Chapman Senior Manager, Fixed Income Origination giles.chapman@cba.com.au Auckland Telephone Address Brian McTaggart Richard Howse Charlotte Hover Head of Capital Markets NZ Director Executive Assistant brian.mctaggart@asb.co.nz richard.howse@asb.co.nz charlotte.hover@asb.co.nz Fixed Income Syndication Sydney Telephone Address Paul O Brien Patrick Moore Head of Fixed Income Syndication Senior Manager, Fixed Income Syndication paul.edward.obrien@cba.com.au patrick.moore@cba.com.au Sales Institutional Telephone Equities Telephone Syd Melb Lon HK Sing NY FX Credit Japan Desk FX Debt & Derivatives Corporate Syd Asia Lon/Eu NY Corporate NSW VIC SA WA QLD NZ Metals Desk Agri Desk (Corp) Agri Desk Telephone

Fixed Income: Australian Debt Securities Update

Fixed Income: Australian Debt Securities Update 22 July 2011 29 July 2011 A$ MTN Primary Issuance Update Primary issuance momentum continued in the A$ MTN market this week with a number of Kangaroo transactions from SSAs and foreign banks. International