insto - Australian financial markets

Gone are the days of the talent shortage. Now there is a surplus of good candidates in the market, changing the balance of power – but the Government's boost to the bonds market means the search for good bankers has already re-started, reports Alexandra Cain.

Rising interest rates are modestly shifting consumer sentiment, but are increasingly affecting retail sales. Consumer sentiment faltered, but was still elevated according to the November Westpac-Melbourne Institute’s consumer sentiment index.

Strong consumer sentiment would seem to support the case for the RBA to deliver another cash rate hike in December, but actual retail spending has been at odds with strong sentiment and has been said to be quite soft.

If there was any doubt that 2009 was the year that the domestic bond market had got its groove back, it was well and truly erased in the third quarter, reports Jonathan Shapiro.

Conditions continued to improve, increasing the confidence of both issuers and investors.

From July to September, over A$30 billion of non-government bonds were printed, making it the busiest period of the year, exceeding Q2 total issuance by A$10 million and more than double the amount issued in the third quarter of 2008.

Financial services issuers, outside of the Big Four banks, are likely to remain on a steady diet of vanilla transactions, as Elizabeth Fry explains.

Up until now retail investor interest in listed fixed interest securities in Australia has been focussed on hybrid securities and convertible notes which appear more exciting because of their equity-linked features and higher yields.

Stocks in the US declined for the second straight session as home sales showed an unexpected reversal and global investors grew nervous as governments withdraw stimulus measures.

The S&P500 fell 1 per cent to 1,050 while the financial component of the index fell 1.8 per cent as home sales declined. The National Association of Realtors said that US home sales had fallen 2.7 per cent in August. The annual rate is 5.1m, down from 5.24m in July, and lower than the forecast rise to 5.35m.

The UK banks have a thing or two to teach our financial players when it comes to boosting regulatory capital, writes Elizabeth Fry.

Who said plain vanilla was the only flavour of 2009? Investment banks are always trying to come up with new and innovative ways of structuring deals.

The global financial crisis has hit banks with a double whammy by both increasing the need for them to improve their capital position and making it difficult for them to raise new capital.

US stocks reversed course on Monday after negative comments on the US banking sector dampened sentiment.

US stocks traded relatively flat after conceding early session gains. The S&P500 closed 56 points lower, or down 0.05 per cent after trading up 1 per cent earlier in the day.

The afternoon sell-off is attributed to comments made by the head of regional lender SunTrust, who said that banks will continue to be impacted by real-estate related losses throughout 2010.

Prominent US bank analyst Dick Bove also released a bearish report on the US banks, and is anticipating between 150 and 200 bank failures in the coming months. Bove said that FDIC insurance premiums could equate to 25 per cent of the banking industry’s pretax income and that private equity and non-US banks will be needed to step in and take-over troubled banks.

US credit indices tracked equities for most of the session, trading moderately tighter. The Markit CDX index moved in a bp to 114.

In bonds, US Treasuries traded higher before the afternoon sell-off in equities. The 10yr yield declined 9bps to 3.48 per cent. The week sees US$109bn of new bonds issued but some observers say demand could be soft as the auctions do not coincide with significant maturities.

In US corporate bond issuance, Westpac (AA/Aa1) priced a US$1.5bn 5.5yr global senior bond issue. Initial price talk was in the mid to high 100bps over US Treasuries. The deal priced in line with guidance at UST+175 and is understood to have been driven by large reverse enquiry orders. Leads were BOAMER/JPMorgan.

Utah energy company- Questar was the day’s other issuer, pricing a US$300m 10yr bond. There are some signs that US new issue supply is slowing with no deals printed despite a strong bid-tone on Friday and little talk about of impending September supply.

European credit continued to tighten in the absence of any significant economic or corporate news. The Markit iTraxx traded about 4bps tighter at 88, while the Crossover went below 600 again, moving 22bps tighter to 583.

In European issuance, Irish Nationwide Building Society printed a €500m tap of its September 2010 guaranteed deal at 160 to 165bps over swap.

Here are some highlights from the Thomson Reuters “Investment Banking Scorecard” for the week to 20 August:

• Nine consecutive weeks of IPO filings in the US: Since late June, 32 companies have filed to go public on US stock exchanges, marking nine consecutive weeks of IPO filings and the longest streak in over a year. Notable names include Hyatt Hotels, Dole Foods, Dollar General and Ancestry.com.
   
• US debt capital markets activity in step with 2008: The volume of new debt offerings from US issuers totals US$1.5 trillion for year-to-date 2009, exactly even with volume last year at this time. US High Yield activity is up 139 per cent over 2008 levels, totaling US$72.4 billion from 166 offerings.

US stocks had another positive session, after higher energy prices outweighed weaker Asian equities.

The S&P500 and Dow Industrial index both gained 0.69 per cent during an interesting session.

US stock futures had pointed to a lower opening after a 4.3 per cent fall in Chinese stocks. That market is fearful that loose lending has led to a run up in property and stocks, which the government is seeking to restrict.

Global response, local reaction

In early July, Insto magazine and Mallesons hosted a roundtable on future financial markets regulation, with participation from a wide-cross section of the industry.