Westpac capital notes 4 (ASX code: WBCPG) will begin trading on 1 July 2016 with a first call date of 20 December 2021 and an issue margin of 4.90%. The margin was set over a month ago and since then, financial markets have been on a roller coaster ride which started when markets priced in a successful Remain vote. Things have settled down since the successful Leave vote but YieldReport thought it may be instructive to revisit a comparison of the margin on Westpac’s latest hybrid security with the margin offered by similar securities which are already trading.
Trading update from the Bell Potter trading desk (1 July 2016): The attractive issue pricing of WBCPG translated to the security listing at $100.90, with an intra-day high of $101.29. The record spread offered by Westpac for a major bank hybrid issue of 0.70% between the 4.90% issue margin and the 4.20% average trading margin of the 15 major bank prefs was a very positive factor. With a continued reduction in global interest rates witnessed over 2016, the attractiveness of high issue margin securities is apparent.
From the above diagram which plots trading margins of major banks at the close of business on 29 June, readers may reach two conclusions. One is Westpac’s Notes 4 may be a little on the low side and vulnerable to some adjustment, although it is obviously not the only candidate for such an adjustment. The other conclusion is investors may view some of the other hybrids in a more positive light.