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 Finance Corporation completed the largest issue of the week with a A$1.5bn transaction comprising both fixed and floating rate tranches. This benchmark transaction is the largest in the market from an SSA for 2011. CBA acted as a joint lead manager to this transaction. JPMorgan Chase & Co. increased their existing March 2016 fixed and floating rate notes by a further A$350m. Rentenbank increased its April 2018 line by a further A$500m. The transaction was priced at a spread of ACGB + 116bps. It takes the total outstanding in the line to A$750m. (Format) Rating Issue Maturity Amount Coupon Spread to Benchmark International Finance Corporation (Kangaroo) JPMorgan Chase & Co. (Kangaroo) Rentenbank (Kangaroo) AOFM CGS Tender AAA/Aaa AAA/Aaa Aug-16 A+/Aa3 A+/Aa3 Mar-16 AAA/Aaa AAA/Aaa Apr-18 AAA/Aaa AAA/Aaa Oct-15 A$1.25bn 5.00% ACGB + 74 A$250m BBSW + 15 BBSW + 15 A$275m BBSW + 135 BBSW + 145 A$75m 7.00% Swap + 145 A$500m Total Outstanding: A$ 750m A$1bn Total Outstanding: A$2.24bn 6.25% ACGB + 116 4.75% Weighted Average Yield 4.5374% Note: Yellow border indicates CBA acted as a Lead Manager on the transaction 2011 Primary Issuance Table Week ending 29 July 2011 2011 Year to Date 2010 Year to Date Comparison No. of No. of No. of Sector Volume Volume Volume Volume Transactions Transactions Transactions SSA 2 A$2bn 42 A$19.65bn 48 A$22.57bn -A$2.92bn Domestic Banks 17 A$19.0bn 28 A$15.56bn +A$3.44bn Foreign Bank/Branches 1 A$350m 24 A$16.55bn 18 A$11.05bn +A$5.5bn Non Bank Financial 11 A$4.24bn 3 A$440m +A$3.8bn Corporate 18 A$4.15bn 13 A$2.41bn +A$1.74bn Semi Government 9 A$12.3bn 11 A$13.91bn -A$1.61bn Total 3 A$2.35bn 121 A$75.89 121 A$65.94bn +A$9.95bn Sources: CBA & Bloomberg Offshore Issues by Australian Borrowers *sizeable issuance only Market Rating () Maturity Amount Coupon Issue Margin National Australia Bank US 144a AA/Aa2 Jul-16 A$350m A$1.35bn outstanding 3.00% T+158 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.
Australian Rates Market Update Figure 1: 3Y and 10Y Australian Bond Curve 5.10 Continued uncertainty in the US pushed Aussie bonds higher on Monday after US lawmakers once again failed to reach a consensus on raising the debt ceiling Aussie bonds saw a minor sell off on Tuesday after RBA Governor Glenn Stevens' instilled some confidence back into the market after his Speech Aussie bonds sold off sharply on Wednesday, particularly in the front end after domestic CPI data came in 0.2% above expectation at 0.9%, (2.7% YoY). Washington once again took centre stage on Thursday, with fears of a US technical default mounting within the market. This caused Aussie bonds to rally intensely in the long end. Bonds rallied for a second day in a row after yet another day of passed by without a decision from US Lawmakers. 4.60 5.05 5.00 4.55 4.50 4.45 4.95 4.40 4.90 4.85 4.35 4.30 4.25 4.80 Friday 22 July 2011 Monday 25 July 2011 Tuesday 26 July 2011 Wednesday 27 July 2011 Thursday 28 July 2011 Friday 29 July 2011 4.20 GACGB10 Index (LHS) GACGB3 Index (RHS) Sources: CBA & Bloomberg Bonds began the week with a rally following a risk off session of trading in the US on Friday night. There was speculation over the weekend that the US debt ceiling impasse might be resolved by the start of the week, however this did not materialise. RBA Governor Glenn Stevens provided some confidence to the market on Tuesday after his speech titled The Cautious Investor reiterated the overall strength of the Australian economy in spite of a rise in household saving and a decline in consumption. Rate cuts still however remain the collective view of the market. The Aussie front end was crushed on Wednesday following the CPI, with 3Y bond yields rallying as much as 12bp. The strong data reduced the probability of rate cuts to 5% over the next 3 months. Thursday proved an interesting day in the Aussie bond market, with global and domestic views both having an impact on the Aussie bond curve. Following the strong CPI data on Wednesday, the short end of the curve remained very well supported, with rate cut concerns beginning to dissipate, leaving the front end of the curve almost unchanged. The long end, however, rallied intensely with fears of a stalemate in Washington at the forefront of the global market. The asymmetric sentiment at the extremes of the curve caused a flattening of 6bps, taking the Aussie 3/10Y futures curve to a 6 week low of 38bp. Thursday s theme managed to continue through to Friday, with fear of US default driving the market, pushing bond yields 10bps lower across virtually all tenors of the curve. 2
Australian Credit Market Update Strong momentum continued this week in the Aussie credit market with IFC pricing the largest SSA issuance for 2011. Strong international support has also persisted for domestic bank paper in the 4-5 yr part of the curve. The secondary A$ credit market continues to remain well bid as investors seek high quality credit names amidst an uncertain global economic outlook. The $A Swap curve flattened considerably this week as the short term expectation of rate cuts began to fade after a strong CPI print which saw the front end sell off, meanwhile the long end continues to rally on the back of US debt ceiling concerns. Spreads between the A$ Swap curve and government bond curve continue to widen across all tenors as a result of uncertainty in the market. Ratings News New Rating / Withdrawal Upgrades or Downgrades Credit Watch / Outlook No new ratings. Moody's has downgraded Greece s local and foreign currency bond ratings to Ca from Caa1 and has assigned a developing outlook to the ratings. Standard & Poor s has lowered its long term sovereign rating on Greece to CC from CCC. The outlook is negative. Standard & Poor s has lowered its local currency long term sovereign rating on Malaysia to A from A+. The outlook is stable. Moody's has placed the ratings of eight Greek banks on review for possible downgrade. This rating action followed the announced EU support programme for Greece and debt exchange proposals by major financial institutions, which imply that private creditors will incur substantial economic losses on their holdings of government debt. 3
Spread (bps) Spread (bps) (%) Yield (%) Spread (bps) Fixed Income: Australian Debt Securities Update Swap Rates Figure 2a: Australian Swap Rates 5.8 5.6 Figure 2b: Australian Basis Swap Rates 23 21 Yield (%) 5.4 5.2 5 19 17 15 4.8 5 year 7 year 10 year 13 5 Year 7 Year 10 Year Rates Figure 3a: Australian Rates 5.40 5.20 5.00 4.80 4.60 4.40 4.20 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 (%) 4.75 5.00 5.25 5.25 90-Day Bank Bill (%) 4.95 5.20 5.40 5.60 180-Day Bank Bill (%) 5.00 5.30 5.50 5.65 3 Year Bond (%) 4.60 5.10 5.50 5.60 10 Year Bond (%) 5.20 5.50 5.55 5.60 Credit Markets Figure 4a: Global CDS Indices Figure 4b: VIX 128 126 124 122 120 118 116 114 112 110 108 itraxx Australia (LHS) itraxx Asia (ex Japan) (LHS) 102 100 98 96 94 92 90 88 24 23 22 21 20 19 18 17 16 15 VIX Australian Banks Figure 5a: Current Major Bank Spreads Rating Maturity Coupon Spread to Swap ANZ AA / Aa2 Feb-14 6.25% +74 CBA AA / Aa2 Jul-14 6.50% +83 CBA AA / Aa2 Feb-20 7.25% +143 NAB AA / Aa2 Sep-14 6.75% +87 WBC AA / Aa2 Aug-14 7.00% +87 WBC AA / Aa2 Feb-20 7.25% +142 Figure 5b: Australian Bank CDS 138 136 134 132 130 128 126 124 122 120 Major Bank Average Senior CDS 4
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 + 16.7 Swap + 16 European Investment Bank AAA / Aaa Jun-21 A$500m 6.25% ACGB + 113 ACGB + 125 European Investment Bank AAA / Aaa Aug-19 A$350m 6.5% ACGB + 94.25 ACGB + 120 KfW Bankengruppe AAA / Aaa Jan-16 A$500m Total Outstanding: A$1.5bn 6.00% ACGB + 68.5 ACGB + 80 KfW Bankengruppe AAA / Aaa Feb - 18 A$450m 6.25% ACGB + 82.75 ACGB + 99 KfW Bankengruppe AAA / Aaa May-21 A$450m 6.25% ACGB + 102 ACGB + 115 Kommunalbanken Norway AAA / Aaa Oct-14 A$200m Total Outstanding: A$1.075bn 6.00% ACGB + 67.5 ACGB + 82 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 + 117 BBSW + 117 BBSW + 115 AMP Bank A/A2 Jun-14 A$250m BBSW + 120 BBSW + 120 BBSW + 118 Suncorp Metway A+ / A1 May-14 A$650m BBSW + 110 BBSW + 110 BBSW + 108 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 + 143 Swap + 160 A$750m BBSW + 143 BBSW + 143 BBSW + 157 A$250m 7.25% Swap + 180 Swap + 172 A$250m BBSW + 180 BBSW + 180 BBSW + 178.5 A$750m 7.75% Swap + 205 Swap + 207 A$550m BBSW + 205 BBSW + 205 BBSW + 210 Westpac Banking Corporation AA / Aa1 May-16 A$425m 6.75% Swap + 113 Swap + 110 A$1.825bn BBSW + 113 BBSW + 113 BBSW + 112 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 + 210 Swap + 215 A$150m Total Outstanding: A$500m 7.75% Swap + 160 Swap + 159 BBB May-16 A$175m 7.75% Swap + 235 Swap + 224 Sources: CBA & Yieldbroker 5
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