November 2015

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The fall in hybrid trading margins (the yield margin above the 90 day bank bill reference rate) for ASX-listed corporate rate bonds and ASX-listed floating rate hybrids which was seen in October proved to be temporary as trading margins resumed their widening trend in November. The average ASX-listed corporate rate bond margin at the end of November was 2.96% (or around 5.23% total yield), materially up from October’s 2.62%. The average ASX-listed floating rate hybrid trading margin increased by a smaller amount but, even so, at the end of November it was 4.65%, up from October’s 4.31% and above September’s trading margin of 4.48%.

Hybrid Issue Margins

Last month AMP announced the issue of $230 million worth of a new ASX-listed hybrid with a margin of 510bps above the 90 day bank bill rate. AMP senior debt has a credit rating of A. This month Macquarie announced and priced a new ASX-listed hybrid in the form of Macquarie Group Capital Notes II with a margin at the low end of the indicative range (515bps) above BBSW. Macquarie Group senior debt has a credit rating of BBB, three notches below that of AMP. The question has been put as whether AMP’s margin is too high given its credit rating or Macquarie’s is too low? And with most of the hybrid issues over the past 12 months, the trading margin was fixed at the lower end of the initially indicated range suggesting that either investors are not pricing the risk correctly, the investment banks selling hybrids are pricing the hybrids very well or the demand for a higher yield means that investors are almost happy to accept any yield.

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ASX LISTED HYBRIDS

COMPANYCODEHYBRID
TYPE
MATURITY
OR STEP-UP
DATE
MARGIN
INC FRANK
TRADING
MARGIN
∆ MONTHMONTH
CLOSE
YTM
Est**
ANZ Banking GroupANZPAMCPS I16/12/20163.10%2.96%-0.58%99.875.22%
ANZ Banking GroupANZPCMCPS II28/09/20173.10%4.44%0.51%99.16.80%
ANZ Banking GroupANZPDMCPS II1/09/20213.40%4.73%0.30%95.27.09%
ANZ Banking GroupANZPECapital Note24/03/20223.25%4.79%0.16%93.327.15%
Bendigo BankBENHBPerpetual21/10/20541.00%3.12%0.15%68.265.38%
Bendigo BankBENPDMCPS II13/12/20175.00%3.68%-0.63%102.176.04%
Bendigo BankBENPEMCPS II30/11/20203.20%4.85%-0.04%93.157.21%
Bendigo BankBENPFMCPS II15/06/20214.00%4.87%0.25%98.987.23%
Bank Of QueenslandBOQPDMCPS II15/04/20185.10%4.44%0.66%102.36.80%
CBA PERLS 3PCAPAStep Up6/04/20161.05%3.56%-0.04%199.155.82%
CBA PERLS 6CBAPCMCPS II15/12/20183.80%4.31%0.35%99.816.57%
CBA PERLS 7CBAPDMCPS II15/12/20222.80%4.63%0.07%916.89%
ChallengerCGFPACapital Note25/05/20203.40%5.16%0.46%93.47.42%
IAGIAGPCMCPS II1/05/20174.00%4.32%0.58%1006.68%
IAG RESIANGReset pref16/12/20194.00%4.40%-0.06%99.856.66%
Macquarie BankMBLHBIncome SecPerpetual1.70%3.91%0.02%70.476.17%
MacquarieMBLPACapital Note24/03/20213.30%4.86%0.50%947.22%
MacquarieMQGPACapital Note7/06/20194.00%4.60%0.11%97.666.96%
Multiplex SITESMXUPAPerp'l PrefPerpetual3.90%7.57%1.64%66.59.83%
Nat Aust BankNABHAIncome SecPerpetual1.25%3.30%-0.09%70.055.56%
Nat Aust BankNABPAMCPS II20/03/20193.20%4.42%-0.26%97.46.68%
Nat Aust BankNABPBMCPS II17/12/20203.25%4.43%-0.06%94.736.69%
NufarmNFNGStep UpPerpetual3.90%5.75%0.26%80.38.11%
PaperlinxPXUPAPerp'l Pref30/06/2052N/A8.80%0.00%10.7811.16%
Ramsay Health CareRHCPAPerp'l PrefPerpetual4.85%4.61%0.02%103.76.97%
Suncorp-MetwaySBKHBIncome SecPerpetual0.75%2.09%-0.04%774.35%
SuncorpSUNPCMCPS II17/12/20174.65%4.68%0.93%101.36.94%
SuncorpSUNPEMCPS II17/06/20203.40%4.62%0.69%96.46.88%
Seven Network TELYS 4SVWPAPerp'l Pref2/12/20544.75%8.95%0.57%6511.31%
WestpacWBCPCMCPS II31/03/20183.25%4.46%0.74%98.36.82%
WestpacWBCPDMCPS II8/03/20193.20%4.38%-0.08%96.46.64%
WestpacWBCPEMCPS II22/09/20223.05%4.64%0.30%92.486.90%
WestpacWCTPAStep Up30/06/20161.00%3.03%-0.49%99.335.29%

** YTM for floating rate securities is an estimate using current interest rates. This will vary if rates change.
Source: Evans & Partners. Dealing Contact Michael Saba +61 3 9631 9813

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