To guarantee or not to guarantee
It was interesting to observe Mike Smith, CEO of ANZ, come out last week and call for the abolition of the government guarantee for bank debt. In fact, Smith called on all governments to scrap the guarantees for their banks because it was distorting the market for bank debt.
As things stand the distortions suit the funding objective of banks.
CBA last week sold US$2.0 billion of government-guaranteed bonds in the US s144A market the day after Smith's remarks, and said it was premature to be calling for the removal of the guarantee, noting that the guarantee was still enabling banks to obtain cost-effective debt.
While this columnist has also called for the removal of the guarantee, at least in the domestic market, the debate that now appears to be developing is missing the point. The banks can choose to issue with the guarantee or without it.
Obviously, it will be to their long-term benefit to issue without a guarantee, but each can make a choice as to when they are prepared to go it alone in the markets. However, it is likely that all will pay some price for any delay in moving to unguaranteed issuance because while there is a split in the market, further spread contraction could be minimal.
As it was, the CBA issue was split between two equally sized tranches of fixed and floating rate notes priced at 38 basis points over swap/libor for a December 2012 maturity.
Rabobank Australia also issued offshore, adding $75 million to its April 2014 euro medium-term note, to take outstandings to $225 million; and Suncorp Metway announced on Friday that it is planning a government-guaranteed Samurai issue.
In the domestic market, Westpac added a further $300 million to its $1.7 billion, three-year, non-guaranteed bond issue, undertaken the week before. The pricing on the top-up remained unchanged at 120 bps over swap/bank bills, with $50 million being added to the fixed rate tranche to take outstandings to $700 million, and the floating rate tranche was increased to $1.3 billion.
European Investment Bank also added $250 million to its May 2014 line, to take outstandings to $1.0 billion. Pricing was tighter on a spread to CGS basis, coming in at 93.25 bps compared with 112 bps, initially.
FirstMac priced the issuance of $625 million of RMBS via FirstMac Mortgage Funding Trust Series 1-2009. Pricing was disclosed on the first four tranches of the multi-tranche issue, with 'A-1+' rated, Class A-1 notes being priced at 70 bps over bank bills and the 'AAA' rated tranches priced as follows: Class A-2, 115 bps; Class A-3, 140 bps; and Class AB, 220 bps.
AOFM advised that mandates have now been given to Australian Central Credit Union and Wide Bay Australia to bring the next AOFM-backed RMBS issues to market.
This was followed by Standard & Poors' affirming its 'BBB-/A-3' and 'BBB-' ratings on Wide Bay and its captive mortgage insurer subsidiary, and amending the outlook on the ratings to stable from negative, on amelioration of concerns over funding and liquidity.
As for AOFM's own issuance activities, it issued $700 million of February 2017 CGS on Wednesday, at a weighted average yield of 5.33 per cent with oversubscriptions of 3.3 times. On Friday, it issued $700 million of May 2013 CGS at an average yield of 4.57 per cent, with the offer 3.5 times oversubscribed.
In the New Zealand bond market the Council of Europe Development Bank confirmed the re-opening of the kauri market with a NZ$150 million, June 2014 bond issue. The issue was priced at 31.5 bps over the five-year, New Zealand government bond, and with swap rates below government bond rates, this equated to about 50 bps over swap.
Downer EDI subsidiary, Works Finance (NZ) Ltd., fixed the credit spread on its September 2012 bond at 500 bps over swap (the minimum coupon rate is 8.75 per cent) and advised that it has already sold the NZ$150 million of bonds on offer. The bonds were taken up entirely by retail investors.
On Thursday, NZDMO sold NZ$50 million each of April 2015 and December 2017 bonds and added another NZ$100 million to its May 2021 line. Oversubscriptions came in at two, three and more than four times and the weighted average yields achieved were 5.35 per cent, 5.88 per cent and 6.57 per cent, respectively.