Last week global equity markets produced mixed returns as concerns surrounding Germany’s largest bank (Deutsche Bank) dominated headlines. The US Dow Jones & S&P500 indices were up 0.26% & 0.17% respectively while Asian and European bourses were down. In Europe concerns surrounding the European banking sector escalated following Deutsche Bank shares falling to an all-time low of €10.25 on Thursday before recovering to end the week at €11.67 (following the U.S. Justice Department’s suggestion that Deutsche Bank should pay a US$14 billion fine relating to the bank’s role in the mortgage-backed securities market during the GFC). At the heart of the loss in confidence is whether the German government and/or the European Banking Authority will lend support to Deutsche Bank should they need it. Deutsche Bank’s €4.6 billion tranche of contingent-convertible bonds (coco bonds) also sold-off heavily and reflects the volatile nature of hybrid securities. In domestic news, the CEOs of the 4 major banks are scheduled to appear before a parliamentary inquiry this week and the issues facing Deutsche Bank will hopefully act as a reminder to the nation’s politicians as to why our banking system needs to maintain a reasonable level of profitability. The ASX200 Accumulation Index ended the month of September up marginally by 0.05%. The domestic bond markets were mixed during September with the Ausbond Composite Index marginally weaker by -0.14% in contrast to the Ausbond Credit Index rising modestly by 0.19%. This was primarily driven by investors shifting capital from longer dated sovereign bonds into mid-date corporate bonds. On the ASX listed hybrid front, the ANZ Capital Notes 4 (ASX code ANZPG) debuted well, ending the week at $100.69 with the trading margin contracting from 4.70% to ~4.59%. Unlike the previous 3 major bank hybrid issues which allocated stock to substantial cornerstone institutional investors, this issue appears to have been largely spread amongst retail investors. Overall, the AT1 hybrid market has performed well with all securities except BOQPD (-1.3%) recording positive returns for the September quarter. ANZPF was the strongest performer with a return of 7.4%. The $300 million Qube subordinated notes (ASX code QUBHA) are expected to commence trading on a deferred settlement basis on Thursday. The issue oversubscribed with a margin set at 3.90% over the 90-day bank bill swap rate (90BBSW). Wholesale primary market activity also remains robust following reporting season with Qantas (two fixed-tranches at 7-years and 10-years totalling $425 million) and Suncorp Group’s fully owned subsidiary AAI Limited (A$330 million floating rate subordinated notes) issuing new securities. Click below for Charts Chart 1: Bloomberg AUSBond Composite Index (Monthly) Chart 2: Bonds vs Equities 2015/2016 (Monthly) Chart 3: Term Deposit Review – August 2016