insto - Australian financial markets

In early July, key participants in Australia’s syndicated loans market gathered for a roundtable in the Sydney offices of law firm Blake Dawson. Here is an edited transcript of the discussion, moderated by Insto editor Lachlan Colquhoun.

The Bond markets are off to a bumper start

Australia’s debt capital markets have continued the momentum of 2009 on into the early part of 2010, with several new themes.

While the expiry of the Federal Government’s Guarantee saw a flurry of last-minute activity, that story was overtaken by the strength of the Kangaroo market and a strong return by Australian corporates to the bond markets as they sought funding diversification.

The Australian Stock exchange’s monopoly on local equities trading will end in October when the Nomura Holdings-owned Chi-X opens for trade. Global high frequency traders are on their way, but is that a good thing?

"Never waste a good crisis" is advice usually attributed to Machiavelli, but German Chancellor Angela Merkel and her finance minister Wolfgang Schaeuble appear to have adopted it as a mantra. One would assume the German financial services regulator, Bafin, would have anticipated the likely market reaction to Germany's  ban on naked short-selling of German-listed securities and CDS transactions. Was it moralising desperation as claimed by commentators, or is there another explanation for this precipitate action?

The first week of May saw the RBA raise the cash rate once again by 25bp to 4.5pct. This hike was in line with consensus expectations and is the sixth increase in the current cycle that started in October 2009. In spite of this news, it was another fairly quiet week in the debt markets, with BNG conducting two transactions, an A$50m tap to its Jan 2015 EMTN and a NZ$50m tap to its Dec 2014 EMTN. Telstra also launched and priced a NZ$100m Kauri bonds, after holding a roadhsow the week before.

*EMTN*

After the Anzac long weekend, the markets remained fairly quiet early on in the week, and picked up slightly towards the end with Rabobank and BNG both pricing EMTN’s. Meanwhile news of the largest ECM deal of the year by QBE filtered through, on Friday and also on Friday Telstra Corporation Limited held a Kauri bond investor update hosted by BNZ, CBA and Westpac. Meanwhile SACL also announced that it was holding a roadshow in Melbourne and Sydney this week to give an update on its operating and financial performance.

*EMTN*

The World Bank priced on Wednesday the reopening of their Nov 2016 and Dec 2019 bond lines, which marks the organisation’s return to this market after it issued an A$1.5bn 5.75pct Feb 2015 benchmark earlier this year.

The new offering was launched with an initial target total size of A$600m across both tranches. Due to strong demand the total increase size across both tranches reached A$1.4bn.

Distribution:
• Australia 61pct
• Asia 21pct
• Europe 16pct
• North America 2pct

The latest performance update of the alternative indexes from the EDHEC-Risk Institute’s asset management analysts shows that hedge funds continue to do well, as the world economy picks up.

Last month, the stock market was back on the rise with a comfortable gain (+6.00 per cent). This was “in a context of decreasing implied volatility (24.51 per cent), which is now at its lowest level since September 2008,” noted EDHEC’s report for November. Since its low point in February 2009, the S&P 500 index has now recovered half its losses from its high of September 2007.

The Federal treasurer Wayne Swan has directed the AOFM to invest up to a further $8 billion in Australian RMBS with no plans for a liquidity facility at this stage.

Securities purchased by the AOFM will be rated AAA or equivalent by one of the major credit rating agencies, and subject to other strict eligibility criteria to be specified by the Treasury Secretary.

The German development bank KfW has mandated RBC Capital Markets and TD Securities for a new December 2019 Kangaroo bond. The transaction is expected to price in the near future, subject to market conditions.