8 November 12 November 2010 Australian $MTN Market Update Rating Issue Maturity Amount Coupon Spread to Benchmark Volkswagen Australia A- / A3 A- / A3 Aug-13 A$100m New total A$250m 6.50% Swap + 140 Telstra A / A2 A / A2 Jul-20 A$200m New total A$350m 7.75% Swap + 175 Rabobank Nederland (Australia Branch) AAA / Aaa AAA / Aaa Jul-14 A$275m New total A$1.0bn BBSW + 82 BBSW + 92 AOFM CGS Tender AAA / Aaa AAA / Aaa Jul-22 Jun-16 A$500m New total A$5.8bn A$700m New total A$6.0bn 5.75% 4.75% Weighted average yield 5.4348% Weighted average yield 5.2675% Rating Issue Maturity Amount (Buyback) Margin at Issue Buyback Margin Citigroup (Australia GG) Government Guaranteed A / A3 AAA / Aaa Jun-12 A$412.7m Swap + 65 Swap + 5 A$786.5m BBSW + 65 BBSW + 5 Primary market activity this week was skewed toward issuers increasing existing lines. Telstra priced a A$200m tap of their 7.75% Jul-20 line at Swap + 175. Rabobank priced their A$275m tap at BBSW + 92. VW completed their fourth transaction in the domestic market for the year, increasing their 6.50% Aug-13 by A$100m at Swap + 140. Domestic bank paper continued to feature heavily in secondary market trading last week in both the fixed and floating rate format. Trading in corporate paper was up from the prior week, with activity predominantly driven by secondary trading in Telstra paper. There was considerable offshore investor demand for recent issues, including Société Générale fixed rate paper. Offshore Issues by Australian Borrowers *sizeable issuance only Market Rating Tenor Amount Coupon Spread to Benchmark Goodman Group US 144a / Reg S BBB / Baa3 10 years US$325m 6.375% T + 387.5 5 years US$100m 2.95% T + 180 Toll Holdings USPP NAIC-2e* 7 years US$100m 3.65% T + 180 10 years US$75m 4.34% T + 180 *e denotes expected rating Goodman Group issued 6.375% US$325m Nov-20 at T + 387.5, the Group s debut offshore bond transaction. Proceeds of the issue will be swapped to Euro and GBP and used to repay existing borrowings Important Disclosures and analyst certifications regarding subject companies are in the Disclosure and Disclaimer Appendix of this document and at www.research.commbank.com.au. This report is published, approved and distributed by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.
Australian Government Bonds Figure 1: 3Y and 10Y Australian Bond Curve % Strong payroll figures in the US (exceeding market expectations 81K) which prompted moderate sell-off in the US market, which flowed onto the domestic market. 0.6% October rise in ANZ job Ads caused little market reaction. NAB Business Confidence data fell from 10 to 8 over the month. Concerns over European peripherals continue to build. Busy day in the rate markets. Sell-off in US market overnight causes Australian bond yields to open higher, however yields rallied back during the day following strong AOFM CGS A$500m Jul-22 tender (caused the curve to flatten around 2.5bps), and weak consumer confidence (-5.3% m/m). Release of October labour figures: 29.7K increase in employment overall (above market expectations). Increase to the participation rate caused unemployment rate to increase from 5.1% to 5.4%. The rise in unemployment due to the strong particpation rate was not anticipated, sparking a minor rally Quiet day to finish the week with no release of domestic data, US market closed overnight due to holiday. AOFM CGS A$700m Jul- 16 tender received strong interest with bid/cover ratio of 4. NAB & Westpac announce increases to their variable mortgage rate (43bps and 35bps respectively ). % 5.20 5.38 5.36 5.15 5.34 5.32 5.10 5.30 5.05 5.28 5.26 5.00 08 Nov 2010 09 Nov 2010 10 Nov 2010 11 Nov 2010 12 Nov 2010 5.24 3Y ACGB (LHS) 10Y ACGB (RHS) Australian 3 year and 10 year bonds closed the week 2 bps lower and 6.5 bps higher respectively over the week, with the 3/10 curve steepening 8.5bps to 29bps. Release of domestic data was light as the market digested minutes of RBA and FOMC meetings. Key themes offshore which continued to build during the week included concerns over peripheral Europe's sovereign debt issues and further monetary policy tightening of China. The Australian bond market opened the week with a modest sell-off following the stronger than expected payrolls data from the US (151K increase versus 70K expected increase). Thursday s employment figures showed an increase of 29.7K in October exceeding market expectations. However, the increase in the participation rate to an all time high (65.9%) caused the unemployment rate to increase from 5.1% to 5.4%. The data was seen to be weaker than expected by the market as the curve rallied by 2-3 points. Westpac and NAB announced increases to their variable mortgages rates on Friday afternoon, increasing rates by 35bps and 43bps respectively. This news saw the front end rally. The AOFM continued the global trend of long end issuance on Wednesday with the tender of A$500m Jul-22 and A$700m Jun-16 bonds. The A$500m Jul-22 auction was completed after the AOFM s announcement on Tuesday that projected funding for FY2011 would be trimmed (from A$60bn to A$53.5bn A$58.5bn), and received solid interest with a bid/cover ratio of 4.55. Friday s A$700m Jun-16 auction also received notable interest with the coverage ratio around 4. 2
Term Fixed Income: Australian Debt Securities Update Swaps AUD Swaps: Outright swap yields rose around 10bps across the curve over the week. The Swap/Bond 3-10yr spread ended the week around 18bps tighter at +18.1bps AUD Fixed / Float Swap AUD / USD Basis Swap Mid Rate Swap/Bond BBSW v Libor Change (week) AUD/USD Basis Swap: There was little movement in the Australian basis swap curve this week, with increases between 1-2 bps at the long end of the curve. 1 Yr 5.17% q/q 37.30 7.00-3 Yr 5.45% s/s 38.20 21.30 +1.0 5 Yr 5.73% s/s 55.50 28.50 +2.0 7 Yr 5.85% s/s 57.70 28.80-10 Yr 5.91% s/s 56.30 30.30 +1.80 Asset Backed Securities Bankwest launched its second prime RMBS for A$750m, Series 2010-2 SWAN Trust. Commonwealth Bank of Australia acquired Bankwest from HBOS in December 2008. The transaction features a unique 5 year soft bullet Class A3 tranche that is included in the UBSA Composite Bond Index. The Class A3 notes are AAA rated by S&P and Fitch, and will pay a fixed rate, semi-annual coupon. The Class A3 notes after 5 years will either be refinanced or will convert to a pass-through tranche with a monthly floating coupon equivalent to the initial margin plus 50bp. The underlying pool has a WAS of 31.2mths and WALTV of 62.9%. The portfolio comprises of fully amortising loans 78.9%, IO up to 10yrs 21.1%, with highest geographic concentrations in NSW & ACT of 39.7% and WA of 36.3. The AOFM is not expected to participate. Class Amount Rating (S&P / Fitch) WAL (years) Indicative Pricing A1 A$357.75m AAA / AAA 1.73 +105bp area A2 A$175.5m AAA / AAA 2.68 +130 A3 A$157.5m AAA / AAA 4.99 s/m coupon matched asset swap + 150bps area. (Included in UBSA Index) AB A$29.25m AAA / AAA 5.81 +200bps AC A$15m AAA / AAA 5.81 +250 B A$15m NR / NR 8.83 On application bids invited Macquarie Leasing has priced and upsized its second ABS transaction for $496m (up from $300m), SMART Series 2010-2 Trust. Thirteen investors participated in the transaction, which included offshore investors. The transaction has a WAS of 8mths and is comprised of 86.3% of vehicle leases and 13.7% of other vehicle and equipment contracts. Class Amount Rating WAL (years) Pricing A1 A$80.0m P-1 / F-1 0.36 +60bps over BBSW A2 A$360.0m Aaa / AAA 2.20 +155bps over BBSW B A$11.25m Aa2 / AA 2.74 n/a C A$13.75m A2 / AA 2.74 n/a D A$12.5m Baa1 / BBB 2.74 n/a E A$12.5m Ba2 / BB 2.74 n/a Seller Note A$6.0m NR 2.74 n/a 3
Australian Central Credit Union (ACCU) priced its full doc A$530m RMBS deal, Light Trust No.3. The AOFM participated in all of the AAA rated Class A3 tranche. The underlying pool included WALTV of 68.1% and WAS of 29.7mths and is the first RMBS deal for ACCU this year. Class Amount Rating (S&P / Fitch) WAL (years) Pricing A1 A$93.0m AAA / AAA 0.4 70bp over BBSW A2 A$150.0 AAA / AAA 1.5 105bp over BBSW A3 A$243.5m AAA / AAA 5.4 120bp over BBSW AB A$26.0m AAA / AAA 4.2 180bp over BBSW B A$17.5m AA- / NR 4.2 Undisclosed Rating News New Rating / Withdrawal Upgrades or Downgrades Nothing to report. Moody's upgraded the long-term ratings on three Chinese policy banks, China Development Bank, Export-Import Bank of China, and Agricultural Development Bank of China to Aa3 from A1. The ratings carry a positive outlook. Moody s upgraded the Chinese government's bond rating to Aa3 from A1 and is maintaining its positive outlook. S&P upgraded Fairfax Media Limited s outlook on its BB+ rating from Stable to Positive. Credit Watch / Outlook Nothing to report. 4
Origination Sydney London Singapore Patrick Bryant +61 2 9118 1217 Rob Kenna +61 2 9118 1219 Danielle Lavars +61 2 9118 1221 Clare Lewis +61 2 9118 1225 Simon Rutz +61 2 9118 2858 New Zealand Brian McTaggart +64 9 301 5955 Richard Howse +64 9 301 5956 Gary Baker +64 9 301 5957 James Hammermaster +44 20 7710 3626 Sean Rosas +44 20 7710 3959 New York Bill Stevenson +1 212 848 9323 Mark Wang +1 212 848 9308 Hilary Ward +1 212 848 9373 Giles Chapman +65 6349 7087 Syndication Sydney Paul O Brien +61 2 9117 0046 Patrick Moore +61 2 9117 0047 5