The 50 basis point cash rate cut announced by the Reserve Bank of Australia (RBA) on May 1 largely took most local strategists by surprise and left expectations of the future direction of RBA decisions divergent. While some believe the cut signals a more dovish RBA tendency others believe the central bank may already have completed its likely downward path; still more say the future direction is now too difficult to call.
The stable funding note (SFN) priced by Rabobank Nederland Australia Branch (Rabobank Australia) (AA/Aaa/AA) on April 30 enabled the bank to capture demand from investors in shorter-tenor securities while still satisfying net stable funding ratio (NSFR) rules, issuer and lead say. The A$325 million (US$338.9 million) deal has a five-year maturity but also includes a put option allowing holders to cash out of their investment with 12 months' notice.
Although a May 1 cash rate cut by the Reserve Bank of Australia (RBA) is considered virtually inevitable by local economists, there is an expectation that international demand for AUD-denominated assets should prove resilient even to a more prolonged downward rates trend. Some economists also believe the extent of future rate cuts is being overstated by market pricing.
Deal flow took the week off as Anzac day fell mid-week and volatility continued in the market. There were no public syndicated transactions in either the Australian or New Zealand markets, from domestic or offshore borrowers.
A consultation document on Australia's implementation of its G20 OTC derivatives commitments published by the country's Treasury suggests an incentives-based drive towards central counterparty (CCP) clearing is preferred to a mandated approach. But the document also reiterates the Australian government's commitment that "all standardised OTC derivatives contracts" should be CCP cleared.
Powercor Australia (Powercor) (A-) priced its first Australian dollar transaction since August 2007 on April 19, announcing plans to place A$200 million (US$207.5 million) of new five-year bonds at an expected price of 170 basis points over swap.
Suncorp Metway (Suncorp) priced a new domestic three-year deal on April 18 in what will be the issuer's first domestic bond transaction since May 2011. Market sources had suggested during the first quarter of 2012 that Suncorp was close to placing a domestic covered bond transaction, but its first deal action of the year in fact marks a return to unsecured issuance.
Rabobank Nederland New Zealand Branch (Rabobank New Zealand) (AA/Aaa/AA) priced its third domestic deal of the year on April 20 in a new five-year issue. At an indicative 180 basis points over swap, the new deal's margin falls in line with the bank's two other domestic deals of 2012.
Subdued deal flow continued into the second week of April – a week without public activity in New Zealand or issuance in the Australian credit or Kangaroo markets. A single domestic Australian dollar bond deal priced from New South Wales Treasury Corporation, while Australia also saw its second residential mortgage-backed securities issue of 2012.
While a general risk-off sentiment around pricing date may have assisted New South Wales Treasury Corporation (TCorp) (AAA/Aaa) in the issue of its latest benchmark line, leads on the deal say the semi-government sector continues to be well supported throughout market conditions seen in 2012. However, global volatility and the quantity of Australian dollar issuance later in the first quarter suggest a slower primary market in the near term.
Provisional ratings have been assigned to a forthcoming residential mortgage-backed securities (RMBS) issue from ME Bank which includes a one-year bullet maturity tranche provisionally sized at US$300 million. The bullet tranche is supported by a redemption facility provided by National Australia Bank (NAB), under which NAB guarantees to underwrite any potential shortfall in the tranche's redemption fund at maturity date.
After a busy March took first quarter Australian dollar issuance volume to record levels, April opened with much more subdued deal flow in the Australian market and no public activity at all in New Zealand. The first week of the new quarter saw just three Australian deals price – two Kangaroos and a rare triple-B corporate transaction – for a total volume of A$800 million (US$824.9 million).