Guarantor: Deutsche Bank AG
Maturity: February 10, 2004
Issue price: 100.605
Fixed re-offer: 98.98
Spread at re-offer: 29bp over the 9% 01/09/2003 Canada
Launched: Monday January 11
Joint books: Deutsche, RBC DS
Deutsche -- The Canadian, New Zealand and Australian dollar issues that we have launched this week form a single deal in that they are feeding into the retail demand that we are seeing both in house and from accounts across Europe. We have been discussing the deal with RBC DS for some time as they saw similar demand to us,
The three tranches all have the same maturity, have clean coupons, and will benefit from redemption flows that will generate a lot of Benelux demand.
We have been quite active in the institutional market already this year, but there is demand from retail and we are happy to be able to raise these funds while supplying the market with what it wants.
Demand for all three issues has been strong, but the Canadian dollar deal has been a little slower. The Canadian dollar is more closely tied to the US dollar and the currency volatility of the past week has slowed things down.
RBC DS -- The idea of a three tranche transaction is one we had been toying with at the end of last year with a view to launching the deal at the start of this year. The name is one that works well in all three currencies and we felt that simultaneous issues with the same payment date would be an eye-catching concept in a market where there is a lot of new product.
Because of the merger and the consequent need of funds, Deutsche Bank's funding targets have become very reasonable, making this prime name a great credit with which to target the strong flows in all the retail currencies at the beginning of the year.
Doing all the tranches at once was an efficient way of raising funds for Deutsche -- it was basically a question of killing three birds with one stone.
Ideally we would have gone with the same coupon on all three tranches but a 5% coupon on a Kiwi issue would have meant the issue price was too deeply discounted to be acceptable for the German fiscal authorities. So in the end we went for a 6% coupon on the New Zealand dollar tranche.
There is often the risk at this time of year of the market becoming overcrowded but Deutsche is a name that always outsells everything else.
We had been discussing the concept of launching three tranches simultaneously in C$, A$ and NZ$ for some time and we moved as soon as we were ready.
Despite the fact that a lot of co-managers had to absorb all the issues which had been launched early on in the first week of the year, when they looked at the issuer and the pricing they didn't hesitate about getting involved in this one too.
Day one sales were reasonable. There is so much happening in all the markets that it is difficult for investors to concentrate fully on every single issue but given the very active market we were extremely pleased with the initial response to the three issues.
We have seen marginally more sales in the Kiwi transaction but the other two are pretty close behind. The name obviously sells well to Germany but it also goes well in the Benelux and the initial sales will tend to be in the Benelux area because German demand kicks in closer to payment date.
"...a three tranche deal with the same maturity and an interesting concept which raised the profile of the transaction.
The pricing looked OK but there is a lot of paper to chose from and this issue doesn't really offer anything new. It was launched at a reasonable discount to par, however, so it should appeal to German investors.
Deutsche has traditionally been a very good name in the Canadian dollar market. It's not quite what it used to be but it is still highly popular among retail investors. The deal will go but it will take time to sell because there are five or six deals out there and flows for the moment are still pretty limited.
The issue is now (Thursday am) trading at 34bp over on the bid side, having come at 29bp over. All the issues which came out earlier in the year also widened in the volatile conditions we experienced yesterday. The Rabo, for example, which came flat is now trading at 14bp/12bp over while the GECC is now at 29bp over and Ontario is at 31bp over.
The C$ had its biggest one day range ever yesterday which illustrates the amount of volatility out there."
...this was our least favoured currency of the three issues that Deutsche brought out on Monday. We've participated in each of them because Benelux retail love the name and they are all generously priced however we are finding this deal is going the slowest.
As with all three currency sectors we haven't particularly liked the pricing. German retail don't like issues that are priced above par -- hence the pricing -- but Benelux investors do.
They would clearly liked to have seen a higher coupon and if the issue price had been cranked to above 102, we could probably have squeezed a further quarter of a percentage point.
That same criticism also applies to the idea that investors in each sector get a so-called 'round' coupon which rather makes our retail customers appear totally naïve -- sure there are psychological levels for coupons but hitting a round figure rather than a fraction seemed vaguely insulting.
Additionally, by offering five year paper in three currency sectors rather hinders any diversification moves by investors. Yes, there is diversification of investors' portfolios in terms of currencies but not by name. Some investors won't particularly want to hold Deutsche in three currency sectors.
Despite these criticisms sales look set to go reasonably well, the pricing was fine, as was evidenced by the large syndicate in all three currencies."
"...there's not a great deal of interest in Canadian dollar paper at the moment. We had four deals last week and that's largely satisfied demand at all areas of the curve.
Nevertheless, this issue for Deutsche should take away some of the shine from Balaba's deal last week -- also at five years -- which offered only a 4.75% coupon.
Yields are comparatively low across the dollar bloc and there's only a few basis points difference between A$, C$ and US$ bonds. Although there should be some strong redemption flows in the coming months, there is little immediately on the horizon. We see C$1.7bn coming up in March before the next flows in July.
In all some C$5bn is set to be redeemed in the first half of the year. From this we expect around C$2bn to flow back into this market. So, although, this sector's largely full up at present, there should be brighter times ahead next month."
Compiled by Jim Webber, TD Securities, London, Tel: +44 171 282 8216
The Canadian dollar endured a severe bout of volatility over the past week, as the devaluation of the Brazilian real triggered fears that a fresh round of global turmoil might be about to erupt.
The currency, which had started the year with a strong rally that carried it out of its late 1998 trading range towards a test of the C$1.50/US$ level, went sharply into reverse.
However, it quickly stabilised as fears over the potential damage to be caused by Brazil's action faded. With commodity prices stabilising and domestic political concerns again out of the limelight, prospects for the Canadian dollar look positive for the first part of the year.
The currency's early year resilience supported a strong rally in spreads over Treasuries. The two year, 10 year and long spreads, which opened the year at 15bp, 24bp and 14bp respectively, all contracted to less than 10bp during the past week, before widening back out in response to the events in Brazil.
Economic data releases scheduled for the coming week include the December consumer price index -- which is likely to show a continuation of the well established benign trend -- and international trade data for November.
Evidence is mounting that the US economy turned in a strong performance in the fourth quarter, so it would be surprising if the trade surplus did not continue to grow, conceivably topping $2bn for the first time in 1998.
The market will pay close attention to a speech to be given by Bank of Canada governor Thiessen in Ottawa on January 20. With the likelihood of a Fed rate cut in February dwindling, investors will hope to gauge the odds that the BoC might seek an opportunity to cut rates independently.
The reversal in the currency this week, although short lived, underscores the risks such a move might bring.
Looking further ahead, the 1999/2000 federal budget, likely to be tabled in mid-February, should provide confirmation that Canada's fiscal improvement is continuing. Provincial budgets over the next two months will also bring far more good news than bad, giving the market a positive tone through the first quarter.