25 June 29 June The Week Ahead Market reaction to the outcome of the EU summit will set the tone for the market next week. EU data updates along with China s manufacturing PMI will also provide direction for the market early in the week. In Australia, the RBA will hold its monthly meeting on Tuesday. Market is not expecting further rate cuts this time, however, accompanying statements will be scrutinised. In the US, industrial production figures for May and non-farm payrolls figures for June will be closely watched to gauge the speed of the US economic recovery. A$MTN Primary Issuance Update (Format) National Australia Bank (Domestic) Asian Development Bank (Kangaroo) Euofima (Kangaroo) Issue AA-/Aa2 AA-/Aa2 Feb-17 AAA/Aaa AAA/Aaa Jul-17 AAA/Aaa AAA/Aaa Oct-16 Maturity Amount Coupon Spread to Benchmark A$550m (total A$1.3bn outstanding) 6.0% Swap + 165 A$950m (total A$1.7bn outstanding) 3mBBSW + 185 3mBBSW + 165 A$900m 3.5% ACGB + 112.75 A$200m 3mBBSW + 20 3mBBSW + 20 A$100m (total A$900m outstanding) 5.625% ACGB + 198 Significant Offshore Primary Issuance Update (Format) Issue Maturity Amount Coupon Spread to Benchmark ASB Finance Ltd (Covered Bond) APT Pipelines Ltd (Maple) AA-/Aa3 Aaa/AAA Jul-17 EUR500m 1.875% MS + 68 BBB/Baa2 BBB/Baa2 Jul-19 CAD300m 4.245% GOC + 276.3 * Note: Yellow shading denotes Commonwealth Bank acted as a lead manager to the transaction Primary Issuance Table Week ending 22 June Year to Date 2011 Year to Date Comparison Sector Volume Volume Volume Volume SSA 2 A$1.2bn 29 A$11.70bn 41 A$16.65bn -A$4.95bn Domestic Banks 1 A$1.5bn 16 A$23.48bn 16 A$15.35bn +A$8.13bn Foreign Bank/Branches 9 A$6.08bn 18 A$13.87bn -A$7.79bn Non Bank Financial 6 A$1.505bn 9 A$3.54bn -A$1.90bn Corporate 12 A$4.18bn 17 A$3.80bn +A$0.38bn Semi Government 14 A$6.705bn 7 A$10.47bn -A$2.77bn Total 3 A$2.7bn 86 A$53.65bn 108 A$63.68bn -A$8.9bn 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.
Upcoming Economic Events Monday 2 July Tuesday 3 July Wednesday 4 July Thursday 5 July Friday 6 July AU AI-Group PMI, Jun, Index, (42.4) AU Building approvals, May, m%ch, 10.0, (-8.7) AU RP Data house prices, AU RBA cash rate, %, 3.5, May, m%ch, (-1.4) (3.5) AU TD inflat gauge Jun, CH Non-Manuf PMI Jun, Index, m/y%ch, (0/1.8) (55.2) JP Vehicle sales, Jun, m%ch, (66.3) EU PPI, May, m/y%ch, (0/2.6) EU/UK PMI manufacturing, UK PMI construction, Jun, Jun, Index, (44.8/45.9) Index, (54.4) US ISM manufacturing, Jun, UK Net consumer credit, May, Index, (53.5) bn, (0.3) US Construction spending, US Factory orders, May, May, m%ch, (0.3) m%ch, (-0.6) US Total vehicle sales, Jun, mn, (13.7) AU CBA/Ai-Group Perf of Serv Index, Jun, (43.5) AU Retail trade, May, m%ch, 0.6, (-0.2) AU Engineering Construction Activity, QI EU PMI services/composite, Jun, Index, (46.8/46) EU Retail sales, May, m/y%ch, (-1.2/-2.7) GE PMI services, Jun, Index, (50.3) UK BoE Housing equity withdrawal, QI, bn, (-8.5) UK PMI services, Jun, Index, (53.3) AU Trade balance May, $bn, 0.3, (-0.2) EU ECB announces int. rate, %, 1.00, (1.00) GE Factory orders, May, m/y%ch, (-1.9/-3.8) UK BoE announces rates, %, 0.50, (0.50) US ISM non-manufacturing, Jun, Index, (53.7) AU Ai-Group PCI, Jun, Index, (34.7) JP Leading / Coincident index CI, May, Index, (95.6/96.9) GE Industrial production, May, m/y%ch, (-2.2/-0.7) UK PPI Input/Output/core, Jun, y%ch, (0.1/2.8/2.1) US Non-farm payrolls, Jun, '000, (69) US Unemployment rate, Jun, %, (8.2) US Avg hrly earnings, Jun, m/y%ch, (0.1/1.7) CA Unemployment rate, Jun, %, (7.3) *Note: Values in brackets represent the prior observed value. Numbers outside brackets are CBA forecasts Australian Credit Market Update itraxx Australia remains largely flat at c.191bps. Investors remain relatively cash rich as there appears to be minimal switching into new transactions. Two way activity remains centred on A$ banks seniors, both fixed and FRNs. In the non-financial corporate space, Asian retail investors have been showing interest volume is small. Two way activities remained in Kangaroo SSAs this week. 2
Fixed Income: Australian Debt Securities Update Australian Rates Market Update Figure 1: 3Y and 10Y Australian Bond Sources: CBA & Bloomberg Aussie bonds started the week 3-5bps higher. The market is cautious ahead of the EU summit. Aussie bonds rallied again by 5-6bps as EU leaders continue to appear divided on how to tackle the euro debt crisis. Moody's 1-4 notch downgrades of Spanish banks added to a cautious tone in the market. A small sell-off of 4bps in Aussie bonds today. A quiet period for Aussie bonds as the end of financial year approaches in Australia. Bonds traded today will be settled in July, the new financial year. Aussie bonds remain largely flat today after trading in a tight range between gains and losses. Similar news headlines out of Europe as Merkel told the German Parliament that there could be no Eurobonds without proper oversight. Aussie bonds were sold off today with EU leaders agreeing on "softer" rules for loans to Spanish banks and a plan for direct bank recapitalisations by the ESM. 3.00 3.00 2.60 2.60 2.20 2.20 Friday 22 June Monday 25 June Tuesday 26 June ACGB 10Y Bond (LHS) Wednesday 27 June Thursday 28 June ACGB 3Y Bond (RHS) Friday 29 June 2.00 s News New / Withdrawal Nothing to Report Upgrades or Downgrades Credit Watch/ Outlook Fitch downgraded the Republic of Cyprus Long-term foreign and local currency issuer Default to BB+ from BBB-. Moody s downgraded by one to four notches the long-term debt and deposit ratings for 28 Spanish banks and two issuer ratings. Moody s downgraded Boral s issuer/senior unsecured and short term ratings to Baa3/Stable/P-3 from Baa2/Negative/P-2. Moody s downgraded the IFS ratings of Genworth s primary life insurance operating subsidiaries to A3 from A2 with a stable outlook. Fitch affirmed Sydney Airport Finance/ Southern Cross Airports senior secured bank debt and bonds at BBB, revising the outlook to Stable from Positive. Moody s placed the debt ratings of Genworth Financial on review for downgrade. 3
Spread (bps) Spread (bps) (%) Spread (bps) Fixed Income: Australian Debt Securities Update Swap Rates Figure 2a: Australian Swap Rates 4.2 4 Figure 2b: Australian Basis Swap Rates 40 35 3.8 3.6 3.4 3.2 Fri, 08 Jun 12 Fri, 15 Jun 12 Fri, 22 Jun 12 Fri, 29 Jun 12 30 25 20 5 year 7 year 10 year 5 Year 7 Year 10 Year Rates Figure 3a: Australian Rates 4.00 3.60 2.00 1.60 RBA Cash Rate 90-day Bank Bill 10Y ACGB 180-day Bank Bill 3Y ACGB Figure 3b: CBA Rates Forecasts End period Jun-12 Sep-12 Dec-12 Mar-13 RBA Cash Rate (%) 3.50 3.25 3.25 3.25 90-Day Bank Bill (%) 3.40 3.10 3.10 180-Day Bank Bill (%) 3.30 3.65 3.65 3.65 3 Year Bond (%) 2.10 1.90 1.80 2.00 10 Year Bond (%) 2.60 2.50 2.60 Credit Markets Figure 4a: Global CDS Indices Figure 4b: VIX 210 140 130 200 120 190 110 100 180 90 170 80 itraxx Australia (LHS) itraxx Asia (ex Japan) (LHS) U.S. CDX (RHS) 30 28 26 24 22 20 18 16 14 12 VIX Australian Banks Figure 5a: Current Major Bank Spreads Maturity Coupon Spread to Swap ANZ AA- / Aa2 Feb-14 6.25% + 75.5 CBA AA- / Aa2 Jul-14 6.50% + 98.8 CBA AA- / Aa2 Feb-20 7.25% + 184.5 NAB AA- / Aa2 Sep-14 6.75% + 100.2 WBC AA- / Aa2 Aug-14 7.00% + 97.5 WBC AA- / Aa2 Feb-20 7.25% + 185.4 Figure 5b: Australian Bank CDS 200 190 180 170 160 150 Major Bank Average Senior CDS 4
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