* Commerzbank AG
Rating: Aa3/AA-
Amount: R200m
Maturity: August 30, 2002
Issue price: 100.735
Fixed re-offer price: 99.81
Coupon: 11.75%
Launched: Wednesday August 23
Joint books: RBC DS, TD Securities
Bookrunners' comments:
RBC DS - This deal is being handled by just TD and ourselves, and was substantially preplaced. It is not a typical retail bond, and definitives will not be printed, but it has attracted institutions looking for rand exposure and value. This is a reasonably priced bond as far as swap levels are concerned, and our customers have bought large tickets.
Looking at the rand market in general, retail flows are picking up again and some decent reinvestment flows are expected in September, when the redemption calendar is fairly good.
TD - Commerzbank had a need for rand funding, which it will leave unswapped, and as we have redemptions coming up in September of about R500m, the two needs dovetailed nicely.
The rand curve is starting to steepen on anticipation that the SARB will cut rates in a couple of months' time, and this has generated some interest in the short end of the Eurorand curve. As everything out there is trading well above par, we were keen to get something into the market to offer to clients at a discount.
We decided not to syndicate the issue because the market is extremely quiet and we did not want to buy back any syndicated bonds.
Initially, we sold paper to some institutions looking for short dated product, but we are happy to hold on to the rest and retail it out over time.
There will be no definitives available, as Benelux investors have not been big buyers of rand product recently. This issue is more targeted at Italian or German investors who have redemption money coming in and who do not require printed bonds.
* Rabobank Nederland NV
Rating: Aaa/AAA/AAA
Amount: R75m (fungible with four issues totaling R325m first launched 17/11/99)
Maturity: August 31, 2010
Issue price: 98.175
Fixed re-offer price: 96.50
Coupon: 13%
Launched: Tuesday August 22
Joint leads: RBC DS (books), Rabobank
Bookrunner's comment:
We have recently been active in the 10 year area of the market, principally with deals for Rabobank and the EIB. Both are quite liquid and there is steady demand for them.
As the Rabobank issue was fully placed and we had some good orders coming in, we increased the deal by R75m, bringing it up to R400m in total.
Market report:
Compiled by Vusi Mhlanzi
RBC DS Global Markets, London
Tel: +44 20 7881 5643
Markets started the week cautiously, ahead of the FOMC meeting and domestic producer inflation data.
July PPI was better than expected, slowing to 8.6% year-on-year, versus a mean forecast of 8.7% and 8.8% the previous month. The inflation figure eased interest rate concerns and the bond market rallied. A decision by the US Fed to leave interest rates unchanged a day earlier - as was largely expected - prompted the positive mood.
Weakness in other emerging markets and surging oil prices early in the week put pressure on the debt market and pushed yields higher. The five year benchmark yield tested the 13% level, before falling back on the release of the benign inflation data. At 12.775% on Thursday, the five year bond yield was about 15bp tighter than on Monday open. Coupon payments amounting to about R10bn at the end of August were seen adding to buying pressure.
Strong interest was seen in the long end of the curve, as market participants believe the inflation outlook has improved. The yield premium between the five and 10 year maturities tightened from 71.5bp at the beginning of the week to 67.5bp on Thursday. The yield discount between two and five years shrunk to 239bp from 253.5bp during the same period. However, surging oil prices remain a concern.
The foreign exchange market came under pressure early in the week as the euro tested fresh three month lows against the dollar. The rand briefly traded above the R7/US$ level before retracing late in the week, on the back of the strong bond market and slight gains in the gold price. The currency was at R6.95/US$ late Thursday, about four cents firmer versus Monday open, but any gains are seen as capped by the softer euro.
The government will hold its second auction of inflation linked bonds early next month. The first auction was not a resounding success as only less than half of the planned R1bn was sold. Only R250m will be auctioned this time, with a 13 year tenor. This brings more credibility to the government's commitment to achieve the inflation target of 3%-6% by 2002.
