From the AFR this afternoon:
Australia New Zealand Banking Group chief executive Mike Smith has signalled that the bank is unlikely to pass on a full rate cut when it reviews its interest rates this Friday, after the price of wholesale funding jumped back up on the back of nervous European markets.
“The [Reserve Bank] said that the cost of funding in the wholesale markets in the last few months have gone down but in fact they have gone up again as a result of the last two days,” Mr Smith said in Brisbane on Tuesday.
Mr Smith has a point, at least in so far as the CDS market sees it (CDS are insurance contracts for underlying bonds so get more expensive as risk rises). Although, according to Banking Day, just two days ago, bond spreads were narrowing for ANZ:
Placement of unsecured bonds by banks totalled A$4 billion last week, helped by a global bond issue form Morgan Stanley and also featuring a finely priced deal from ANZ.
For domestic banks, the A$1.5 billion, three-year floating rate bond priced by ANZ on Friday was the highlight. The FRNs were priced at 100 basis points over bank bills.
With this spread, ANZ has set a new pricing benchmark that is tighter than recent new-issue levels seen from CBA (at 105 bps) and NAB (at 110 bps).
Morgan Stanley, rated A-, sold A$1 billion in bonds at 416.25 bps over swap.
Apart from its Stable Funding Note issue, reported last week, Rabo Australia placed A$225 million of one-year FRNs, paying a coupon of 62 bps over bank bills, last Monday.
The Sydney branch of ING Bank (A+) raised A$100 million for one year, at 100bps over the 90-day bank bill rate.
German development financier KfW added A$450 million to its May 2015 line, and KfW’s top-up to A$2.65 billion was priced at 111 bps over CGS to give the lowest yield yet seen in the corporate bond market, at just 3.94 per cent.
With yields as low as this, investors will be looking elsewhere for better returns, unless capital preservation remains critical.
Still, Mega Bank CDS have been in a rising trend since mid March and are looking strong with both an inverse head and shoulders bottom and bullish ascending triangle in place. 160 points looks the level to watch for a break out:
Mr Smith went on:
Mr Smith said he thought the highly politicised debate over banks and their interest rates decisions was dependent on “the transparency of how the core funding is evaluated…Give it a year and it will certainly not be as much of a hot point as it is right now,” Mr Smith said.
He’s an amusing fellow that Mr Smith.
