Fixed Income: Australian Debt Securities Update 1 August 2011 – 5 August 2011

A$ MTN Primary Issuance Update 

There was limited activity in the primary market this week with the market witnessing increased volatility. The only issuance of the week came from the SSA sector.



KfW Bankengruppe increased its February 2018 line by a further A$300m during the week, taking the total outstanding in the line to A$1.55bn. The transaction was priced at 95.25 bps above ACGB. Rating

Issuer (Format)

Maturity Issuer

Issue

KfW Bankengruppe Kangaroo

AAA/Aaa

AAA/Aaa

Feb-18

AOFM CGS Tender

AAA/Aaa

AAA/Aaa

Apr-23

AOFM CGS Tender

AAA/Aaa

AAA/Aaa

Jan-18

Amount

A$300m Total Outstanding: A$1.55bn

A$700m Total Outstanding: A$3.2bn

A$700m Total Outstanding: A$4.85bn

Coupon

Spread to Benchmark

6.25%

ACGB + 95.25

5.50%

Weighted Average Yield 4.7824%

5.50%

Weighted Average Yield 4.2675%

Note: Yellow border indicates CBA acted as a Lead Manager on the transaction

2011 Primary Issuance Table Week ending 5 August 2011

2011 Year to Date

2010 Year to Date

Comparison Volume

No. of Transactions

Volume

No. of Transactions

Volume

No. of Transactions

Volume

SSA

1

A$300m

43

A$19.95bn

49

A$23.07bn

-A$3.12bn

Domestic Banks

-

-

17

A$19.0bn

29

A$16.16bn

+A$2.84bn

Foreign Bank/Branches

-

-

24

A$16.55bn

18

A$12.05bn

+A$4.5bn

Non Bank Financial

-

-

11

A$4.24bn

3

A$440m

+A$3.8bn

Corporate

-

-

18

A$4.15bn

14

A$2.91bn

+A$1.24bn

Sector

Semi Government

-

-

9

A$12.3bn

11

A$13.91bn

-A$1.61bn

Total

1

A$300m

122

A$76.19

124

A$68.54bn

+A$7.65bn

Sources: CBA & Bloomberg

Offshore Issues by Australian Borrowers Issuer

*sizeable issuance only

Market

Rating (Issuer)

Maturity

USD

AA/Aa2

Jul-14

Uridashi

AA/Aa2

Amount

Coupon

Issue Margin

LIBOR + 95

LIBOR + 93

US$250m National Australia Bank

ANZ

Westpac

Samurai

AA/Aa2

Total Outstanding: US$1.85bn

Jan-15

A$125m

4.97%

N/A

Jan-15

NZ$37.7m

4.08%

N/A

Jul-16

US$31.3m

2.19%

N/A

JPY25.6bn

LIBOR + 62

LIBOR + 62

JPY74.4bn

1.00%

Swap + 47

Aug-16

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.

Fixed Income: Australian Debt Securities Update

Australian Rates Market Update Figure 1: 3Y and 10Y Australian Bond Curve The week began with a sell off in bonds after the announcement of the bipartisan plan to lift the US debt ceiling.

A strong rally in bonds occurred after the RBA's decision to leave rates on hold.

Bonds continued to rally strongly as the market shifted its focus from the debt ceiling to the slow pace of US growth and problems faced by European sovereigns.

Thursday saw a sell off in bonds on the back of some mixed manufacturing and payroll data out of the US.

Aussie bond yields fell by as much as 40bps (front end) as a risk off attitude captured global markets, with European debt and talk of US recession taking centre stage.

5.00

4.50 4.40

4.90

4.30 4.20

Yield (%)

4.80

4.10

4.70

4.00 3.90

4.60

3.80 4.50

3.70 Friday 29 July 2011

Monday 1 August Tuesday 2 August 2011 2011 GACGB10 Index (LHS)

Wednesday 3 August 2011

Thursday 4 August Friday 5 August 2011 2011

GACGB3 Index (RHS)

Sources: CBA & Bloomberg



After a rally in US bonds on Friday night and the announcement of the bipartisan plan to raise the debt ceiling, the Australian market reacted with a sell off in bonds.



On Tuesday the RBA announced that it would keep the official cash rate on hold at 4.75%. The RBA cited the slower global economic expansion and uncertainty that the EU and US public finances present to the global outlook as key reasons for leaving the cash rate on hold. The bill to raise the debt ceiling was passed by the US House of Representatives and the Senate.



The rally in bonds continued on Wednesday as the market moved on from the resolution of the debt ceiling to the wider issue of slower growth expected by the US economy. The credit problems plaguing some European sovereigns also contributed to overall market sentiment. Finally, weaker than expected domestic retail and trade balance data also contributed to the overall pessimism in the market.



There was a sell off in bonds on Thursday following the large rally from Tuesday to Wednesday. Even after the sell off rates remained relatively low across the curve with the market pricing in future rate cuts. The market received mixed signals from overnight US data for July, with the ISM manufacturing index 0.8 points lower than expected at 52.7 whilst ADP private payroll data was 14,000 above expectations at 114,000.



Since the Sydney close Thursday, the market experienced a massive collapse in sentiment. Across the globe, equities fell by 4% or more, US Treasuries rallied to pre QE2 lows and the Aussie front end rallied as much as 40bp. The Aussie market is now pricing more than 100bp of rate cuts from the RBA. Yields at the front end of the curve are reminiscent of pre GFC market.

2

Fixed Income: Australian Debt Securities Update

Australian Credit Market Update 

The secondary A$ credit market has pushed wider this week as a result of combined global instability, however, in thin trading volume. Investors err on the side of caution as volatility continues to instil fear and dominate market sentiment.



The A$ swap curve saw one of its most turbulent weeks since 2009, with the 3s/10s curve steepening by a staggering 33bps to 75bps. Heightened fear in the market led to a widening of the swap to government bond curve by 10bps in the 3 yrs and 5bps in the 10 years. Yields continued to plummet as concerns surrounding both the US and Europe persisted this week with the short end of the A$ swap curve falling almost 50bps (4.36%) by Friday afternoon, the longer end of the curve finished the week down 30bps (5.20%).

Ratings News 

    

New Rating / Withdrawal

Upgrades or Downgrades Credit Watch / Outlook

Moody’s has withdrawn a number of ratings on Banco Itau BBA International for business reasons. The outlook on all the following ratings before withdrawal was stable:

bank financial strength rating (BFSR) of D+ long-term debt and deposit ratings of Baa2 short-term debt and deposit ratings of Prime-2 senior subordinated debt rating of Baa3 junior subordinated debt rating of (P)Ba1



No ratings upgrades or downgrades to report.



Moody’s has placed Spain’s Aa2 government bond ratings on review for possible downgrade.



Following this announcement Moody's also placed the debt and deposit ratings of five Spanish banks on review for possible downgrade.

3

Fixed Income: Australian Debt Securities Update

Swap Rates Figure 2a: Australian Swap Rates

Figure 2b: Australian Basis Swap Rates

5.8 22 Spread (bps)

Yield

(%)

5.6 5.4 5.2 5

20 18 16 14

4.8 4.6

12

Fri, 22 Jul 11

Fri, 29 Jul 11 5 year

7 year

Fri, 05 Aug 11

Fri, 22 Jul 11

Fri, 29 Jul 11 5 Year

10 year

Fri, 5 Aug 11

7 Year

10 Year

Rates Figure 3a: Australian Rates

Figure 3b: CBA Rates Forecasts

5.30

End period

Yield (%)

5.10 4.90

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 5.60 5.60

4.70 4.50 4.30 4.10 3.90 3.70

Fri, 22 Jul 11

Fri, 29 Jul 11

RBA Cash Rate 180-day Bank Bill

Fri, 5 Aug 11

90-day Bank Bill 3Y ACGB

3 Year Bond (%)

4.60

5.10

5.50

10 Year Bond (%)

5.20

5.50

5.55

10Y ACGB

Credit Markets Figure 4a: Global CDS Indices

Figure 4b: VIX

130

Spread (bps)

126

102

124

100

122

98

120

(%)

104

128

96

118

94

116

92

114 112

90

Fri, 22 Jul 11 iTraxx Australia (LHS) U.S. CDX (RHS)

34 32 30 28 26 24 22 20 18 16 Fri, 22 Jul 11

Fri, 29 Jul 11 Fri, 5 Aug 11 iTraxx Asia (ex Japan) (LHS)

Fri, 29 Jul 11

Fri, 5 Aug 11

VIX

Australian Banks Figure 5b: Australian Bank CDS

Issuer Rating

Maturity

Coupon

Spread to Swap

ANZ

AA / Aa2

Feb-14

6.25%

+65

CBA

AA / Aa2

Jul-14

6.50%

+68

CBA

AA / Aa2

Feb-20

7.25%

+142

NAB

AA / Aa2

Sep-14

6.75%

+65

WBC

AA / Aa2

Aug-14

7.00%

+64

WBC

AA / Aa2

Feb-20

7.25%

+141

Issuer

Spread (bps)

Figure 5a: Current Major Bank Spreads

138 136 134 132 130 128 126 124 122 120

Fri, 22 Jul 11

Fri, 29 Jul 11 Major Bank Average Senior CDS

Fri, 5 Aug 11

4

Fixed Income: Australian Debt Securities Update

Appendix: Secondary Levels of Recent Transactions Supra/Sov/Agency Issuers Issuer International Finance Corporation

Issue Rating

Maturity

AAA/Aaa

Aug-16

Rentenbank

AAA/Aaa

Apr-18

Council of Europe Development Bank

AAA / Aaa

Sep-14

European Investment Bank

AAA / Aaa

Jun-21

KfW Bankengruppe

AAA / Aaa

Jan-16

KfW Bankengruppe

AAA / Aaa

May-21

Kommunalbanken Norway

AAA / Aaa

Oct-14

Amount

Coupon

Issue Margin

Secondary Trading Margin

A$1.25bn

5.00%

ACGB + 74

ACGB + 74.50

A$250m

BBSW + 15

BBSW + 15

BBSW + 13

6.25%

ACGB + 116

ACGB + 117.3

5.75%

Swap + 16.7

Swap - 5

6.25%

ACGB + 113

ACGB + 126

6.00%

ACGB + 75.25

ACGB + 79

6.25%

ACGB + 111.25

ACGB + 114.8

6.00%

ACGB + 67.5

ACGB + 79.75

Amount

Coupon

Issue Margin

Secondary Trading Margin

A$275m

BBSW + 135

BBSW + 145

BBSW + 143

A$75m

7.00%

Swap + 145

Swap + 136.4

A$500m Total Outstanding: A$ 750m

A$125m Total Outstanding: A$1.0bn

A$500m A$500m Total Outstanding: A$2bn

A$550m A$200m Total Outstanding: A$1.075bn

Bank/Holding Co. Issuers Issuer

Issue Rating

Maturity

A+/Aa3

Mar-16

AA/Aa2

Aug-16

A$2.5bn

BBSW + 117

BBSW + 117

BBSW + 115

AAA/Aaa

Jan-15

A$600m

5.25%

Swap + 50

Swap + 45.7

AAA/Aaa

Jul-16

A$800m

BBSW + 115

BBSW + 115

BBSW + 111.5

A+/Aa1

Jul-14

A$500m

BBSW + 83

BBSW + 83

BBSW + 80

A/A1

Jul-14

A$400m

BBSW + 105

BBSW + 105

BBSW + 105

Westpac

AA/Aa2

Jul-15

A$600m

BBSW + 135

BBSW + 101

BBSW + 100

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

A$250m

7.25%

Swap + 180

Swap + 167.1

Morgan Stanley

A / A2

May-15 A$250m

BBSW + 180

BBSW + 180

BBSW + 179

A$750m

7.75%

Swap + 205

Swap + 207.9

A$550m

BBSW + 205

BBSW + 205

BBSW + 210

JPMorgan Chase & Co. Commonwealth Bank of Australia Canadian Imperial Bank of Commerce Rabobank Oversea-Chinese Banking Corporation, Sydney Branch Industrial & Commercial Bank of China, Sydney Branch

Goldman Sachs Group Inc

A / A1

Nov-16

Issue Rating

Maturity

Amount

Coupon

Issue Margin

Secondary Trading Margin

A-/A3

Jul-15

A$150m

6.25%

Swap + 105

95.4

A+/AA-

Jul-16

A$300m

6.25%

Swap + 100

109.8

BBB / Baa2

Jul-18

A$100m

7.75%

Swap + 210

Swap + 214.9

A / A2

Jul-20

7.75%

Swap + 160

Swap + 159.3

Corporate Issuers Issuer Volkswagen Financial Services Australia New Zealand Milk Pty Ltd (Fonterra) Sydney Airport Finance Company Telstra Corporation Ltd

A$150m Total Outstanding: A$500m

Sources: CBA & Yieldbroker

5

Fixed Income: Australian Debt Securities Update

Contact Us Fixed Income Origination Sydney

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Email Address

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+612 9118 4328

[email protected]

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Telephone

Email Address

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Telephone

Email Address

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Telephone

Email Address

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Telephone

Email Address

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Telephone

Email Address

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Auckland

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Head of Fixed Income Syndication

+612 9117 0046

[email protected]

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Senior Manager, Fixed Income Syndication

+612 9117 0047

[email protected]

Institutional

Telephone

Equities

Telephone

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Corporate

Telephone

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6