global markets research weekly strategy€¦ · global markets research weekly strategy 30 july...
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Global Markets Research
Weekly Strategy
30 July 2013
Adam Donaldson Head of Debt Research T. +612 9118 1095 E. [email protected] Philip Brown Quantitative Strategist T. +613 9675 7522 E. [email protected] Alex Stanley Interest Rate Strategist T. +612 9118 1125 E. [email protected] Scott Rundell Chief Credit Strategist T. +612 9303 1577 E. [email protected] Tariq Chotani Credit Research Analyst T. +612 9280 8058 E. [email protected] Tally Dewan Credit Research Analyst T. +612 9118 1105 E. [email protected]
Important Disclosures and analyst certifications regarding subject companies are in the Disclosure and Disclaimer Appendix of this document and at www.research.commbank.com.au. This report is published, approved and distributed by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.
Key views on track but time to take profit
We take profit on our view ACGB- UST spread tightening ahead of the RBA and FOMC meetings.
The RBA should retain an easing bias and rate cuts are likely, but pricing of 76% looks high for an August rate cut.
We take profit on our long 2yr NZGB position and look for a further backup in yields before buying against ACGBs.
Credit should remain quiet ahead of reporting season next week.
Bond yields have lifted this week on the back of positive global data. We retain our core view for higher US yields over the medium to long term, and expect US 10yrs to test the top of their 2.45-2.75% range this week. We don’t expect the FOMC to alter the pace of asset purchases at this week’s meeting and the barrier for Fed language to drive a further sell-off is now higher. But there shouldn’t be any mistaking the fact tapering is on track for September. A key risk for the market is any change in FOMC participants’ views on the appropriate thresholds for altering the asset purchase program. Economic data risks will also be high, as ISMs, growth and payrolls figures are released this week. They should confirm growth is on track despite massive fiscal tightening in 1H-13.
We have been looking for further RBA easing for some time and expect that to remain the key domestic focus for some time. Further rate cuts should still be delivered, keeping the curve under steepening pressure and AUS-US spreads narrowing over time. But we also assess the RBA to be reluctant with cash already at 2.75%. We suspect the fall in the AUD and pick-up in housing may keep them on the sidelines for now while we wait to see if the upside risks on unemployment materialise.
That leaves the August RBA meeting as a close call and the market’s 76% pricing of a 25bp cut therefore too high. We could get some clarity when Governor Stevens speaks today. But given more than 50bp of cuts are now priced in over the next six months, we think it’s prudent to take profit on our AUS-US 10yr spread compression trade (+26bp).
Looking past the short term volatility in CPI data, we think the risks to the consensus view on inflation are to the downside. In particular, we see the oft-cited inflationary impact of a falling AUD as overstated and expect the broader macro backdrop to keep inflation low for the foreseeable future. We have entered a received 3Y ZCS position.
We have taken profit on our long NZGB Apr-15 position, after the RBNZ was surprisingly hawkish in their post-meeting statement last week. We now see a lower probability of the Apr-15s trading back to 2.6%. Further out the curve, the NZGB 10Y is an attractive buy against the ACGB 10Y if the spread moves at least as wide as 50-60bp (see article).
Credit spreads are flat to modestly tighter in both cash and CDS. With reporting season starting next week, investors will be focused on company guidance to gain a sense of where fundamentals are at. Should profits meet expectations, we expect to test our 115 bps iTraxx AU target levels. Any materially negative guidance commentary however could see credit markets gap wider. Further details are inside.
AUS-US spread at its tights with RBA cuts fully priced
Source: CBA, Bloomberg
Key Strategy Views
Tactical (<2 mth)
Strategic (>6 mths)
Policy rate* 2.5% 2.25%
3yr bond 2.8% 3.2%
10yr bond 3.8% 4.1%
10yr BEI 240 230
3/10 curve 110bp 90bp
US 10yr 2.7% 3.2%
10yr v US 110bp 90bp
3yr EFP 25bp 20bp
10yr EFP 50bp 40bp
iTraxx 115bp 105*Note: Strategy Team views. CBA’s Economics team forecasts a final 25bp cut in August.
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10yr bond spread(rhs)
% bp
1yr OIS (lhs)
Global Markets Research | Fixed Income: Weekly Strategy
2
Key Trades:
High Grade:
Trade Entry Current Profit Target Stop Comment Receive fixed (pay CPI) in a 3Y ZCS 2.35%
(23-Jul-13) 2.38% -7bp roll 4bp 2.00 2.55%
New Trade: We expect structurally low inflation. Carbon tax changes possible, too.
Buy the NZGB Apr-15 2.93% (9-Jul-13)
2.85 (26-Jul-13)
+8bp 2.60% 3.10% Take Profit: Closed Jul-26. Risk/reward less compelling following July RBNZ meeting
Buy the QTC Sep-17 vs the QTC Apr-16
41bp (4-Jul-13)
39bp +2bp 32bp 46bp Hold: RV and a probably front-end flattening make this attractive.
Buy the ACGB Apr-23 vs the UST May-23.
143bp (24-Jun-13) 117bp +26bp 100bp 125bp Take Profit: Fed repricing and RBA easing
have tightened spread as expected.
Buy the ACGB Aug-15i vs the Oct-15 Receive ZCS at 2.65%.
250bp (30-Mar-12)
Hold: The trade is now (close to) an 8bp per annum annuity.
Buy the QTC Feb-20 to the NSWTC Mar-19
36bp (13-Nov-12)
39bp -3bp+3.5bp carry = +0.5bp
10bp 50bp Hold: S&P should keep Qld at AA+/Stable, but NSW AAA/neg to remain under pressure
Buy the Apr-25 against the Apr-23 19bp (6-Jun-13)
18bp +1bp 10bp 23bp Hold: Apr-25 should richen as it approaches 10Y, the Apr-23 the opposite
3/10Y EFP box flattener 25bp (29-May-13) 18bp
+3bp (incl -4bp roll) 10bp 33bp
Hold : Long spreads room to compress given bond supply, credit etc.
2013 to date +260.5bp (including +250bp from closed trades)
Credit
Trade Entry Current Profit Target Stop Comment Buy RIO 3.75% Sep-21 (U$) vs BHP 3.5% Nov-21 (U$) on ASW basis
43.0 (13-Feb-13)
46.7 -3.7 20bp 55bp Hold: RIO US$ long-end is steep relative BHP U$ curve
Buy EIB 6.00% Aug-20 (A$) vs EIB 6.25% Apr-15 (A$) on ASW basis
45.0 (15-Mar-13)
65.0 -14.0 25bp 60bp Stop Loss Triggered
Buy NAB 2.75% Mar-17 vs WSTP 2.00% Aug-17 on ASW
15.0 (13-May-13)
15.4 -0.4 5bp 25bp Hold: NAB U$ 2017 wide relative to WSTP U$ 2017
Buy TLS 4.80% Oct-21 on ASW v 1.60x TLSAU 5yr CDS
-0.6 (17-May-13)
-5.1 +4.5 Hold: 2021 bonds offer value at current levels. Long position hedged via CDS
Buy WSTP 3.625% Feb 23C18 v WSTP 1.60% Jan 18 on ASW
125.0 (28-May-13)
131.4 -6.4 100bp 160bp Hold: Sub /Senior multiple to wide
Buy TLSAU 6.25% Apr 15 v TLSAU 4.00% Nov 17 on ASW
-10.0 (12-Jun-13)
-12.2 +2.2 -25bp 0bp Hold: Telstra short/mid A$ curve too flat
Buy RENTEN 5.75% Jan-15 (A$) vs EIB 6.25% Apr-15 (A$) on ASW basis
-1.0 (9-Jul-13)
-1.9 +0.9 -15bp 7bp Hold: RENTEN has underperformed European SSAs
2013 to date +115.52bp (including +118.4bp from closed trades)
Global Markets Research | Fixed Income: Weekly Strategy
3
Short term interest rates
The August RBA meeting is ‘live’. Pricing for a cut has actually firmed to 76% due to soft Australian and Chinese data, despite a slightly higher than expected Q2 core CPI. While August is a close call, we think the market is over-priced for a rate cut. The lack of a CPI ‘smoking gun’ adds to the risk that the RBA will choose to wait for incoming growth data to confirm the need to ease again.
The falling AUD puts less pressure on the RBA to ease right away (but doesn’t materially change the medium term inflation outlook in our view). The RBA will want to see if the move extends further and where the TWI settles. We expect a weak labour market and inflation to keep the RBA in play for many months, with sub 2.5% cash still a good chance. The risk to our view lies more with the RBA pushing rate cut expectations back to see how the AUD and nascent housing recovery play out, rather than abandoning an easing bias altogether.
BBSW spreads to OIS continue to trade in a 15-20bp range. Beyond the typical intra-month seasonality, we think bill/OIS spreads will stay low by historical standards due to limited issuance & ample liquidity.
Commonwealth bond curve
The US sell-off has calmed, rather than stalled. The market is becoming more convinced, but less concerned about Fed tapering. The US recovery is entrenched, with diminishing financial and fiscal tail risks that are taking risk assets to new highs and will pressure bond yields higher. We forecast the US 10Y to reach 3% this year (then slowly rise to 3.4% over 2014). We look for the sell-off to slow because we don’t believe the market can price a terminal fed funds rate high enough to justify a 10Y higher than 3-3.5%. We believe the Fed will begin tapering QE in September.
ACGB bond yields have bottomed. While domestic pressure to ease policy will linger, global bond yields are rising. In line with our US call, we target 10Y ACGBs at 4% end-year and 4.4% by Dec-14.
Longer ACGBs will track the US sell-off over time (but out-perform, see below). The front-end should retain more support given domestic and regional economic challenges, but is exposed in the short-term if the RBA doesn’t cut in August. Any hint that the RBA won’t cut should flatten the curve from its current 110bp.
The 3/10Y curve is already very steep at >100bp, and we’re not inclined to chase it. 3-5yr bonds are at risk of playing catch-up at some point and we are looking for the right opportunity to add a 3/10Y flattener.
Commonwealth bond spreads
We entered an Aus-US 10Y contraction trade after the spread widened in the Fed-inspired sell-off. The spread has since tightened back to 118bp and we have pulled in the stop. Further contraction is likely, but probably requires another kick-along from data before it makes the next move.
We see fundamental differences in the underlying direction of the US and Australian economies. In time, the relative weakness of the Australian economy will pull the spread lower as the US recovers. Additional concern about the pace of current and future growth in China should assist that narrowing.
However, currency related movements could introduce further short-term volatility. AUD-related buying will probably be slow to emerge and the key risk is that further currency-related selling hits first.
AUD money market
Source: Bloomberg, CBA
ACGB curve
Source: Bloomberg, CBA
AUS-US 10Y bond spread
Source: Bloomberg, CBA
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Cash rate
3m OIS
3m BBSW
%
3m BBSW-OIS margin (rhs)
bp
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%
3-10yr futures curve (rhs)
bpAust 10yr bond yield
(lhs)
3yr bond yield (lhs)
100
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%
Aust-US 10yr bond spread(rhs)
bp
Aust 10yr bond yield (lhs)
US 10yr bond yield (lhs)
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2.2
2.4
2.6
2.8
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40
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Global Markets Research | Fixed Income: Weekly Strategy
5
Semi-governments
10yr semi spreads to bond have stabilised after tightening in May and volatility in June. There has been movement below the surface, with spreads to swap widening and offsetting some narrowing in the swap to bond spread, particularly last week. That performance has been resilient given widening in competitor SSA spreads under the weight of AUD selling, and the reversal slowly coming through in that market points to narrower semi spreads ahead.
The front end of the semi curve had remained strong, with spreads tightening to swap as the underlying ACGB yield curve steepened. Performance here will be dictated by AUD, CPI and RBA outcomes in the short term, but we see room for flattening of the semi curve over time, particularly relative to ACGBs.
As detailed above, we expect swap spreads to trend tighter over time as ACGB yields back up, supporting a narrowing in semi spreads to bond. We also expect semis to slowly tighten through swap over the year, reflecting a sharp drop in state borrowing requirements against on-going demand from banks despite lack of clear (public) guidance from APRA that banks will need to further improve the composition of their liquid assets.
Mid-curve swaps are attractive and underpin solid semi appetite around 4-7Y, where curves are steep and well over 2.75% cash.
We have switched our long QTC 2016 to bond position to a 2016-2017 flattener on the QTC curve to take advantage of the steep credit and underlying curve on offer. We think WATC has cheapened enough from prior premium levels and could rally on favourable Budget/rating news. But TCV isn’t being adequately rewarded for its ‘safe-haven’ status, as confirmed in the Budget.
SSAs
The front end of SSA A$ curves has continued to tighten as credit markets have stabilised, but the back end, after some interest at the start of week, remained unloved. Year to date issuance is now quite weak at A$10.20b (vs 2012 YTD A$16.31b).
We expect the short end to remain well bid as market technicals (maturity profile, offshore flows, global uncertainty and limited supply) and attractive spreads to cash persist. We like Renten vs EIB at the front end (2015s) of the curve.
The +5yr segment is particularly unloved. While sovereign downgrade risk and the ongoing macro and political risks in Europe should be the main drivers of sentiment for long-end of European SSAs, weaker A$ led offshore selling has been the important driver of yields and forced spreads wider for all A$ SSA issues. This market dynamic has also impacted issuance. Issuers have been more focused in selectively adding to existing line with benchmark deals few and far between.
We do see value in the long-end of the SSA A$ curves. However, we have been stopped out of our EIB A$ 2020-2015 curve flattener. We still believe that the curves are too steep and that the back-end will catch up when AUD flows stabilise. We will revisit the flattener trade (and there are quite a few of them) sometime in the near future.
2022 semi-govt to bond spread
Source: CBASpectrum
Semi to swap spread
Source: CBASpectrum
Select SSA A$ Curve
Source: Bloomberg
30
60
90
120
150
180
Jul-11 Jan-12 Jul-12 Jan-13 Jul-13
QTC (21-Jul-22)TCV Semi (17-Oct-22)WATC Semi (15-Jul-21)NSWTC Semi (01-Mar-22)
bp
-20
0
20
40
60
80
Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13
QTC (22-Jul-24)QTC (21-Jul-23)SAFA Semi (20-May-21)QTC (21-Feb-18)QTC (21-Apr-16)NSWTC Semi (01-Mar-22)TCV Semi (15-Nov-18)NSWTC Semi (20-Feb-17)
bp
0
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40
60
80
100
120
0.0 2.0 4.0 6.0 8.0 10.0
Sp
read
to A
SW
Years to Maturity
ASIA COEEIB EUROFIADB IBRD
Global Markets Research | Fixed Income: Weekly Strategy
6
Credit Markets
In a relatively quiet news week – the calm before the reporting storm – cash credit curves tightened modestly across all risk bands (AAA down to BBB), with curves steepening slightly on the back of light volumes. While cash credit continued to grind tighter, the recent aggressive spread tightening in CDS took a breather, with iTraxx Australia finishing the week wider.
In the medium term our optimism remains intact, however it has softened somewhat given recent tightening. We expect cash spreads to continue to tighten given the relative health of corporate Australia, limited supply profile and supportive maturity profile. Headwinds however remain - key global macro concerns surrounding slowing Chinese growth, continued European economic and political uncertainty, and the US government debt ceiling issue later in the quarter.
Uncertainty around the timing of the Australian Federal election and resulting policy implications remains a headwind for new issuance. We expect little in new benchmark issuance between now and the end of the calendar year as a consequence. Year-to-date 2013 primary issuance of A$53.80b is 17% lower than last year.
While the upcoming reporting season will provide much needed guidance on corporate health and outlook, we feel technicals will remain the dominant contributor to spread performance
CDS Markets
The iTraxx Australia index finished the week at 119bp, 2bp wider on the prior week, although 2bp tighter than weekly wides. Moving in line with global peers – iTraxx Europe (102bp, +2bp) and CDX IG (74bp, +2bp). The iTraxx Australia however outperformed the iTraxx Asia ex Japan index (141bp, +8bp). The index is 30% tighter than its June 2012 levels but still 22bp off its recent tights.
Since the start of 2013, the iTraxx Australia has performed very well relative to other major indices. However, it has underperformed the iTraxx Europe since mid-April. As expected, the spread between the two has tightened back to average, but the trend partially reversed over last week, with the spread rising from 14bp to 17bp. We expect this spread to gravitate back toward the 12 month average of 10bp and post GFC average of 11bp.
The iTraxx Australia is above our year-end target. While the recent move out was largely in line with our view, we were surprised by the magnitude and speed of the move. We remain sellers of protection over the medium to long term, but we expect the markets to remain volatile in the near term. The index came close to hitting our 115bp two-month at the beginning of last week, which was surprising ahead of reporting season. We feel this level is fair over the near term and subject to any news shocks coming out of the upcoming reporting season, we retain the 115 bps two-month target.
Financials
A$ financials continued to grind tighter through the week. Subsequent to the CBA A$ deal, there has been no other local financial deal. NAB and WSTP both chose to issue 2018 maturing bonds in USD with the NAB deal trading 3-5 tighter than print. Interestingly Royal Bank of Canada also printed a 2018 U$ deal that was done 10bp tighter than WTSP’s issue. ME Bank also announced a conditional buy back of all or part of its GG bonds maturing in Feb
Select CDS Indices
Source: Bloomberg
2013 Maturity Profile (Corp+SSA+Semi+ACGS)
Source: Bloomberg
iTraxx Australia RV performance to Major Indices
Source: Bloomberg
80
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200
Mar-12 Jul-12 Nov-12 Mar-13 Jul-13
bps
iTraxx Australia
iTraxx Europe
iTraxx AsiaXJ
0
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Jul Aug Sep Oct Nov Dec
in A$ billion
0.80
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Mar-12 Jul-12 Nov-12 Mar-13 Jul-13
RV to iTraxx AsiaXJ
RV to CDX-NA
RV to iTraxx Europe
Global Markets Research | Fixed Income: Weekly Strategy
7
2014. Limited supply esp going into reporting season and supportive financial maturity profile (A$16.9b financial bonds maturing in the next 3 months) should keep spreads grinding tighter.
Australian banks maintain their strong position relative to global peers. Wholesale funding cost pressures have eased notably, even considering the moves over the last few weeks. The banks continue to strengthen capital and liquidity positions. Asset quality remains stable with NPLs at ~1.5% of total loans (well below the 1.9% post-GFC high). Although profitability and returns have been supported over the last 6 months by lower funding costs, lower credit costs and cost controls, the banks face earnings headwind in a slow credit growth environment. The risk in the near term is growing competition and impact on NIM.
The main concern for Australian banks from a regulatory point of view is the implementation of liquidity ratio under Basel III. APRA has confirmed it will not follow the Basel Committee by relaxing the Liquidity Coverage Ratio (LCR) implementation schedule. But it has adopted the bulk of the relaxed assumptions for cash inflows and outflows, pointing to a lower liquidity bill that we assess to be favourable for the banks.
With that back drop, we expect domestic and international investor demand for 4M term paper to remain strong. At current levels we look to the short end (<2yr) of the 4M A$ curves for a yield pick up over cash rates. Relative to the seniors, we to prefer the callable pre-Basel III LT2 bonds as they offer great value at current spreads. We continue to hold on to our Sub-Senior RV trade.
Non-Financial Corporates
Reporting season is just around the corner, accordingly news flow from the corporate world has been, as expected, limited. The market is expecting modest earnings growth of 3% - 5% excluding resources, driven by an increased focus on cost management across the board. Top line growth is expected to modest, with investor’s attention drawn specifically to company guidance statements however we are not hopefully of too many definitive comments.
Key economic factors contributing to our modestly constructive view on credit include the continued recovery in the US, although the ever present Government debt ceiling presents a potential source of further uncertainty and volatility. Slowing Chinese growth remains an obvious source of concern given its flow on effect to commodity prices and resource revenues. Lastly, the continued inability of economic policies in Europe to materially influence growth suggests more drastic measures may be required.
While it is tempting to consider higher-yielding issuers and select names have performed well, we prefer to be positioned on an individual credit perspective. In select sectors we continue to expect best-in-class names to continue to outperform even though they trade at already tight spreads.
APA Group’s proposed acquisition of Envestra (S&P: BBB/Stable) remains in play. However, the consensus view is the proposal needs to be sweetened before it is endorsed by Envestra’s board. This is reflected in Envestra’s share price, which is trading at an 11% premium to APA’s offer. As at time of writing, there has been no formal change or comment from APA on whether they will revise their offer.
On 25th July, Dexus Property Group (S&P: BBB/Stable, Moody’s Baa2/Stable) took a 14.9% effective stake in Commonwealth Property Office Fund (CPA, S&P: A-/Stable, Moody’s A3/Stable)
Select 5Yr Aus CDS - 3M Absolute Change
Source: Bloomberg
Select CDS and Bonds
Source: Bloomberg. Bonds – Spread to ASW
Corporate Spread to ASW
Source: CBA
-30 -20 -10 0 10 20 30
RIO
BHP
WOW
iTraxx Aus
WES
CWN
TAH
LLC
QAN
WPL
WBC
QBE
Tighter
Wider
50
150
250
350
Mar-12 Jul-12 Nov-12 Mar-13 Jul-13
bps NAB 7.25% 18WSTP 6.00% 17ANZ 5y CDSiTraxx Eu Sn FinCDX America Sn Fin
50
150
250
350
450
550
650
750
Jan-09 Feb-10 Apr-11 May-12 Jul-13
bpsAA (5yrs)AA- (5yrs)A- (5yrs)BBB (5yrs)
Global Markets Research | Fixed Income: Weekly Strategy
8
through a credit neutral forward share agreement. We have not been alone in our view that a likely full takeover/merger by Dexus of CPA is the likely end result, with the market repricing CPA’s 2016 and 2019 bonds wider to factor in the one notch ratings differential. With CBA’s proposed internalisation of CPA’s property management rights, we don’t envisage Dexus will exercise its rights under the agreement, or in fact seek to increase its stake further. We may however see other potential CPA suitors take action in some form or another.
Covered bonds
Covered bond spreads have narrowed by around 100bps since issuance in late 2011. That 4yr paper is currently trading at a 40% premium to senior unsecured notes. This premium has widened over the year and points to a cautious near-term outlook. At current levels we believe that covered bonds are trading at fair value relative to the seniors. Covered bonds are viewed as defensive in nature and therefore in a narrowing market we expect the covered bonds to underperform the seniors and vice-a-versa.
So far this year, the 5 domestic banks have issued ~A$10.1b covered bonds. Although they have around A$99.5b of spare covered bond issuance capacity, the combination of limited wholesale funding requirement (limited to refinance needs) and the strength of other funding options such as RMBS has negatively impacted covered bond issuance volume for this year. We expect a much weaker year for covered bond issuance (barring a global liquidity crunch) and forecast A$15-20b covered bond issuance for 2013.
The tightening trend in the AUD senior-unsecured notes seemed to have come to an end for the time being. This is consistent with our expectation that the AUD senior-covered spreads will consolidate in the coming month. The senior-covered spreads in EUR and USD markets widened marginally over the week. We continue to believe that the spreads will compresses further in these markets.
RMBS/ABS
We expect RMBS issuance to be highly opportunistic and driven by prevailing market conditions. The four major banks (~80% of lending market) are well funded. However, for the smaller ADI’s, RMBS should remain a key source of funding and their share of total securitisation should remain high.
ABS/RMBS issue margins lagged the tightening seen in the broader credit market in 2012. But they narrowed markedly late in 2012 and early 2013. Prime RMBS transactions for 2-3 WAL have compressed by around 30bps compared to end of last year. We believe that the observed rally on issue spreads has reached a plateau and do not foresee any major contraction in the near term.
BOQ issued its first RMBS of the year through “Series 2013-1 REDS Trust”. 23 investors participated in the deal and it was upsized from A$500m to A$850. All the five classes of Notes were priced in the market. Both Class A1 Notes (guidance 105-110bps) and Class A2 Notes (guidance 110-115bp) priced at the wide range of the price guidance. The A2 Notes are 3-yr soft-bullet notes. Compared to recent Bendigo and Adelaide Bank deal, the mezzanine tranche priced around 50bps wider at 1m BBSW+220bps. We expect more securitisation deals in the coming months and the spreads are likely to remain wider than the recent lows.
Aust banks A$ covered bonds vs senior debt
Source: CBASpectrum
Senior-Covered ASW spreads
Source: Bloomberg, CBA
RMBS, ABS and CMBS Issue Margin (2-4yr)
Source: Bloomberg, CBA
30
60
90
120
150
180
210
Jul-11 Mar-12 Nov-12 Jul-13
bps WBC (18-Nov-16)
CBAC (25-Jan-17)
WBC (09-May-16)
WBCC (06-Feb-17)
WBC (20-Feb-17)
10
20
30
40
50
60
70
Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13
A$ U$ €
0
50
100
150
200
250
300
350
400
450
Jan-07 Aug-08 Apr-10 Nov-11 Jul-13
bps
CMBS
ABS
RMBS
Global Markets Research | Fixed Income: Weekly Strategy
9
iTraxx Australia: Key constituents and 3M snapshot
Source: Bloomberg, Prices as of 26 July 2013
5y CDS change over 3 months: 5y CDS performance over 3 months:
Issuer 3 month trend 19-Jul %: Absolute bps: Absolute %: Relative to A-iTrx bps: Relative to Index
(bps) (bps) + = CDS wider (- = CDS tighter) + = underperformed (- = outperformed)
A-iTraxx 120 +8.8% +9.7
ANZ 109 +21.7% +19.4 +12.9% +9.7
CBA 108 +25.6% +22.0 +16.8% +12.3
NAB 109 +18.5% +17.0 +9.7% +7.3
WBC 109 +21.7% +19.4 +12.9% +9.7
AMP 121 +8.0% +8.9 -0.8% -0.8
MBL 142 +9.9% +12.8 +1.1% +3.1
QBE 176 +6.2% +10.2 -2.6% +0.6
GPT 118 -3.2% -3.9 -12.0% -13.6
LLC 205 +4.4% +8.6 -4.4% -1.0
WFG 110 +1.1% +1.2 -7.7% -8.5
BHP 77 +15.1% +10.2 +6.3% +0.5
RIO 110 +0.4% +0.5 -8.3% -9.2
WPL 111 +18.6% +17.4 +9.8% +7.7
TLS 74 +9.1% +6.2 +0.3% -3.5
WES 77 +19.3% +12.5 +10.5% +2.8
WOW 75 +18.2% +11.5 +9.4% +1.9
CWN 162 +6.9% +10.5 -1.9% +0.8
TAH 179 +6.4% +10.8 -2.3% +1.1
AMC 97 +3.4% +3.2 -5.4% -6.5
CSR 108 +5.9% +6.0 -2.9% -3.7
AGL 90 +26.6% +19.0 +17.8% +9.3
QAN 204 +4.8% +9.3 -4.0% -0.3
Global Markets Research | Fixed Income: Weekly Strategy
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Key Forecasts
Cash rate 30-Jul Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15
US 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.50Australia 2.75 2.50 2.50 2.50 2.50 2.50 2.75 3.00New Zealand 2.50 2.50 2.50 2.75 3.00 3.00 3.25 3.75United Kingdom 0.50 0.50 0.50 0.50 0.50 0.50 0.75 0.00Euro-zone 0.50 0.50 0.50 0.50 0.50 0.50 0.75 1.00Japan 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.00Canada 1.00 1.00 1.00 1.00 1.00 1.25 1.50 0.00
2-yr bond yield 30-Jul Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15
US 0.32 0.50 0.75 1.00 1.20 1.40 1.60 1.80Australia 2.43 2.50 2.50 2.60 2.80 3.20 3.60 3.70New Zealand 2.79 2.90 3.20 3.50 3.80 4.10 4.30 4.40United Kingdom 0.30 0.30 0.35 0.40 0.60 0.90 1.20 1.50Germany 0.16 0.10 0.10 0.20 0.50 0.80 1.10 1.30Japan 0.13 0.15 0.20 0.20 0.25 0.25 0.35 0.35Canada 1.17 1.30 1.60 1.80 2.00 2.20 2.40 2.60
10-yr bond yield 30-Jul Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15
US 2.60 2.80 3.00 3.20 3.30 3.40 3.40 3.50Australia 3.77 3.90 4.00 4.10 4.20 4.30 4.40 4.50New Zealand 4.22 4.30 4.50 4.75 5.00 5.20 5.10 5.10United Kingdom 2.32 2.40 2.50 2.60 2.90 3.20 3.30 3.40Germany 1.66 1.70 1.80 1.90 2.00 2.10 2.20 2.30Japan 0.80 0.90 1.00 1.00 1.10 1.10 1.10 1.20Canada 2.50 2.60 2.70 2.90 3.20 3.40 3.50 3.60
Global Markets Research | Fixed Income: Weekly Strategy
11
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