CPS3 rushed, who gives a Waratah?
Retail investors get very few opportunities to invest in bonds. Bond investment is largely restricted to institutional investors in Australia, who can choose among more than 1,100 individual issues currently outstanding. Retail investors, on the other hand, are relegated to selecting from the 70, largely illiquid, bond and hybrid securities listed on the Australian Securities Exchange.Not surprisingly, retail investors have a very high allocation of shares in their investment portfolios and very little is allocated to bonds. But new opportunities await.In the space of less than a week, two new bond issues have been launched that are aimed specifically at retail investors. And it seems that the recent volatility in the share market will ensure an enthusiastic reception for both issues.Last week, ANZ launched its CPS3 hybrid preference share issue. We noted on Monday that the yield being offered on these hybrid securities seemed to be light, with better opportunities being available elsewhere.Secondary pricing on comparable hybrid securities for ANZ and National Australia Bank are at margins of more than 400 basis points. We also noted the first time appearance of a common equity capital conversion trigger. This is a new feature in bank-issued hybrid securities, imposed by APRA, which has the unattractive effect of bringing the risks to the holder much closer to equity-like risk than debt risk.Nevertheless, neither of these features has cooled the ardour of the brokers who expect to sell these hybrid securities to their clients. At the bookbuild conducted yesterday, brokers bid the coupon yield into 3.10 per cent over the 180-day bank bill rate, from a possible margin of as much as 3.30 per cent over. Such was the brokers' enthusiasm that ANZ increased the size of the issue to A$1.25 billion, from an initial A$750 million.Investors who are bowled over in the expected rush for the ANZ hybrids may be able to console themselves with the opportunity to invest in Waratah bonds. Waratah bonds were launched on Sunday by the New South Wales government. The government is offering retail investors the opportunity to invest alongside institutional investors, literally.The bonds will be issued by NSW Treasury Corporation and guaranteed by the government of NSW. They will not be listed on the ASX. The bonds can only be traded 'over the counter', as in the professional market, with transfers being processed by the registrar, Link Market Services, subject to TCorp's approval.Alternatively, TCorp will buy back all, but not some, of an investor's Waratah bonds at any time after the first coupon payment, based on prevailing market rates.Commensurate with the senior standing of the bonds and the very low credit risk of the NSW government (retail investors are not allowed to know that the NSW government has a 'AAA' credit rating) the three-year bonds being offered will carry a 4.25 per cent coupon, payable semi-annually, and the 10-year bonds on offer will carry a coupon of 5.1 per cent. These coupons are bang-on the money as to where yields closed yesterday on NSW government bonds in the wholesale