It's deja vu all over again.

They are out there and willing to lend billions to BHP at one third that rate.

Is that telling us something about the risk on Aussie banks? If our banks are risky that can only be because the rest of the world believes our property bubble is about to pop.

Any other explanation?
 
So my good friends at CBA just issued $3.5B in covered bonds with a 5 year term at 175bp over bank bills.

That's around the 6% mark, people.

For secured borrowings!

Hi TF

Bank bills, swap rate, libor rate etc. is not something I know much about,
but I see National Australia Bank (NAB) had priced a 500 pound million issue of covered bonds, maturing in three years and with floating rate yield of 145 basis points over three-month Libor.

Read more: http://www.theage.com.au/business/m...-bond-issue-20120120-1q9lx.html#ixzz1jxr4OlOR

The 3 month Libor rate seems to be 0.56 add the 145 basis points would give a rate of 2.01%.

As I understand the CBA covered bonds were also 175 basis points over the
3 month Libor rate.

As I mentioned this is an unkown area for me, would you please elaborate on how the interest rates NAB and CBA are arrived at ?

Cheers

Pete
 
Turk, if that loan is denominated in pommy pounds then NAB assumes the exchange risk. Don't know if that would make much difference, just something to note.
 
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Hi TF

Bank bills, swap rate, libor rate etc. is not something I know much about,
but I see National Australia Bank (NAB) had priced a 500 pound million issue of covered bonds, maturing in three years and with floating rate yield of 145 basis points over three-month Libor.

Read more: http://www.theage.com.au/business/m...-bond-issue-20120120-1q9lx.html#ixzz1jxr4OlOR

The 3 month Libor rate seems to be 0.56 add the 145 basis points would give a rate of 2.01%.

As I understand the CBA covered bonds were also 175 basis points over the
3 month Libor rate.

As I mentioned this is an unkown area for me, would you please elaborate on how the interest rates NAB and CBA are arrived at ?

Cheers

Pete

Short version and at the risk of grossly oversimplifying, if you want to "use" money raised OS to fund your Aussie operations, you need to swap them back into AUD.

As a result, your LIBOR plus 145 will end up as something like BBSW plus 175 which is about what it cost CBA to raise $ domestically.
 
Turk, if that loan is denominated in pommy pounds than NAB assumes the exchange risk. Don't know if that would make much difference, just something to note.

Hi SF

I imagine the risk would somehow be hedged.

What I am trying to understand is how TF calculated the 6% for the CBA
bonds and if my calculation is correct for the NAB bonds why the huge disparity.

Cheers

Pete
 
Hi SF

I imagine the risk would somehow be hedged.

What I am trying to understand is how TF calculated the 6% for the CBA
bonds and if my calculation is correct for the NAB bonds why the huge disparity.

Hedging is expensive, even for a large institution like NAB. The longer the term, the more expensive it is to hedge as well. So that is why borrowing overseas isn't always cheaper.
 
Hi SF

I imagine the risk would somehow be hedged.

What I am trying to understand is how TF calculated the 6% for the CBA
bonds and if my calculation is correct for the NAB bonds why the huge disparity.

Cheers

Pete

NAB issued in sterling, which swapped back to AUD will be BBSW plus about 175. CBA issued locally in AUD at a price of BBSW plus 175.

BBSW is around 4.50%

All up, 6.25%ish
 
BHP's raising was in USD but as they are an international company they report in USD anyway and we get the A$ equivalent of their div payments. No hedging needed.

Sorry my brain hurts. :(
 
There have been several posts on the FT about shortage of Australian government bonds, which you can find here, here and here.

The trouble with the Eurozone strikes me as having three main components:
  1. The rules weren't adhered to. France and Germany ran budget deficits in excess of the 3% of GDP agreed at Maastricht, Greece lied about its fiscal position prior to Eurozone membership.
  2. The European banking sector is still holed below the waterline. Much of the Greek bailout is designed to support them.
  3. Many of the Eurozone governments want Germany to provide fiscal transfers to weaker members, and fire up the printing presses. Fund managers are keen on this because they stand to profit. The Germans aren't because they have to pay for it all. This is leading to a political deadlock.
The Germans seem to be working towards longer term, structural reforms to stabilise the Euro, and I think that Angela Merkel is winning this argument. I think that she's right, because:
  • A QE programme by the ECB would be a short term fix, and also would damage its credentials early in its life.
  • The reunification of Germany was a long, costly and painful experience. The country was the sick man of Europe for many years as a result. Germany can't afford to bail out Greece on its own.
A further complication is that any agreement could fall foul of the treaties governing the EU. David Cameron's use of the veto in December prevented a European wide solution. Had it gone to the vote, it's possible that the Irish would have voted no in a referendum, delaying the process.

In the meantime the markets react much faster than the politicians...

I think that the EU is working towards a solution, and there are noises coming from officials that they expect the Euro to be stabilised by the end of the year. Whether that's true or not is a different matter. We'll see.
 
I think that the EU is working towards a solution, and there are noises coming from officials that they expect the Euro to be stabilised by the end of the year. Whether that's true or not is a different matter. We'll see.

Graeme
But they've been working on a solution for a long time haven't they?
So far the only thing they managed to do is to make things worse.
The other thing is that as they've cut spending, the low Euro is all the amunition they have left to fight a downturn and the unemployment so I don't know how a stronger Euro would help their situation.
Anyway, if these noises are true we should be shorting the AUD because it is at an all time high against the Euro.
 
...and it begins again.

But it hadn't finished, just swept under the media mattress.


29-12-2011 There is still another chapter here:
Whilst Germany and France are telling other EU countries how bad they have been behaving, they are somehow glossing over the fact that their own banking institutions are also bankrupt. Not in case of default, but as of now. Well actually it's been since the GFC.
Their posturing is only to serve their own needs, but the PIIGS are well aware of this, which is why their attitude is basically "it's your problem too! Point that finger at us, and we say stick it up yourself!"

I thought this was obvious...
09-11-2011 The greek (and most PIIGS) would vote to ditch the EU and tell them to shove whatever money they are owed where the sun doesnt shine, and that those shoddy and corrupt institutions aka banks do not deserve to be paid one rusty drachma.
And so there is no chance a referendum will be held.
Joining the EU made the situation worse for most people, of course the media would have you believe otherwise.
 
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