Maturity: March 18, 2004
Issue price: 101.27
Spread at launch: 51bp over the governments
Launched: Thursday February 18
Lead mgr: TD Securities
There is a very healthy redemption schedule in Australian dollars between March and June, averaging A$1.2bn per month, and the approach we have taken to the market is very much redemption driven.
We did not have a five year issue in primary, our Rabobank deal being sold out and having paid a few weeks ago, and we needed an issue to fill the gap.
At the same time, we needed something that offered a good yield but also a name with a proven track record. National Australia Bank (NAB) fitted the bill perfectly.
It is a classical name for the Australian dollar sector. It offers an attractive yield, a solid credit and good name recognition, especially in Switzerland and Benelux where most of the redeeming bonds are held.
Also most of the product that is maturing is from similar credits. NAB in fact has a deal maturing in March and investors will naturally roll into a new NAB deal.
In terms of pricing, NAB is very competitive on a yield basis with recent five year issues for GMAC and UBS. GMAC is trading in the 70s and UBS at 36bp over while NAB came at 51bp over with a 5.5% coupon which is 5bp higher than UBS and matches GMAC.
We syndicated 42% of the bonds, saw a little flowback in the broker but made good sales away from the syndicate on day one. We are very comfortable with the trade and expect it to clear before payment date.
"...we are expecting the Aussie sector to be quite busy in the next two or three months since redemptions are running at around A$1bn a month. There was an obvious gap for a five year issue as there was nothing left in the primary market and I was actually surprised not to see a deal earlier.
NAB was a good name to bring to appeal to those investors looking to reinvest and the coupon is better than on recent five year bonds and equalled that paid by GMAC. The deal should go well."
"...everything is fairly quiet on the retail side and so we decided that a co-management position would suffice for us here. It is not just Aussie dollars where placement is low - all dollar bloc transactions are going slowly. Perhaps it is the holidays we have had this week, or just that January was very busy.
The deal itself should not be much of a problem as we only have A$1m and the terms are quite attractive. The 5.5% coupon is higher than some we have seen this year, even if those lower coupons were for better names, and NAB is a well known name. Anyone who has ever bought Aussie dollars is going to be familiar with the borrower."
"...Aussie dollars are not too popular with Benelux investors, but this should go OK. Earlier in the year the yield differential between Aussies and Kiwis was such that the difference in coupons between the two currencies was 1%. The difference is not so large now and that will help Aussies, which have the lower coupons.
It was a bit of a shame to see NAB in the currency. They had only just launched a Kiwi deal and even if they are not the most frequent borrower in the Euromarkets, it does bore investors to see the same name too much."
Compiled by Glenn Blackley, RBC DS Global Markets, London. Tel: +44 171-865 1759
The RBA's latest quarterly report on the economy and financial markets confirmed the easing bias in monetary policy, revising down significantly its inflation forecasts (down to 2% by the end of 1999) amid reduced fears of imported price pressures.
The RBA's assessment of the domestic growth outlook suggests that it may have revised upwards its growth forecasts for 1999 and into 2000. While growth is still anticipated to ease, the report highlighted the current momentum of the economy, noting that a slowdown appears to be on the cards "later than formerly thought".
The domestic bond market began the week considerably weaker, opening around 20bp higher in yield after a hefty sell-off in the local SYCOM session, following a fall in US Treasuries and JGBs.
From there the market consolidated steadily, finding solid buying support, bolstered by the RBA's confirmation of low inflation going forward. The yield curve flattened 2.5bp, with the three year bond futures closing at 95.04, and the 10 year contract at 94.68.
The A$ drifted lower, dragged down by a large pullback in the yen against the US dollar. This followed indications by Japanese officials that the yen should be lower to the US amid an easing credit environment. The unit lost 1.5¢ to US$0.6365/A$ as US based banks unwound long positions, and commodity prices plumbed 24 year lows.