Last week marked a busy week for primary markets as issuers rush to secure funding before the Easter holiday period. In over-the-counter (OTC) markets there was new issuance from Credit Union Australia, AMP Bank and WSO Finance (a subsidiary of Transurban) with a number of companies remaining in the queue. In the high-yield space, IMF Bentham announced the launch of its second secured unlisted notes seeking to raise a minimum of $18 million (7.40% p.a.). Primary activity in the ASX-listed market also remains elevated with residential developer Villa World Limited (ASX: VLW) announcing the issuance of a new 5-Year Simple Corporate Bond (Prospective ASX Code: VLWHA). The minimum size of the offer is $50 million but will change based on demand and the proceeds from the transaction will be used to grow inventory through acquisitions and joint-venture opportunities. Interest payments will be paid on a quarterly basis based on a calculation equal to 90-Day BBSW plus an interest margin 4.75% (set through bookbuild on Friday). The bonds are expected to be issued on the 21st of April 2017. Earlier in the week, National Australia Bank (ASX: NAB) closed the offer of NAB Subordinated Notes 2 (ASX: NABPE) raising $943.2 million (up from the indicative offer size of $800 million). The notes are expected to begin trading on a normal settlement basis today. Under the reinvestment offer, ~$539 million of the NAB Subordinated Notes (ASX: NABHB) were repurchased and cancelled leaving ~$634 million of NABHB outstanding. This morning, Suncorp Group (ASX: SUN) announced a new Additional Tier 1 (AT1) hybrid, Suncorp Capital Notes (Prospective ASX Code: SUNPF). SUN are expecting to raise $250 million from the offer and have guided the margin to be in the range of [4.10 – 4.30%] set through a bookbuild. These notes and are expected to be issued on the 5th of May 2017. As there is no reinvestment offer under the notes, this is the second AT1 hybrid to be issued out of cycle in 2017 (following Challenger Capital Notes 2) and will help relieve persistent supply-side pressure in the ASX-Listed Debt & Hybrid market. The Suncorp Convertible Preference Shares II (ASX Code: SUNPC) are scheduled to be called in December 2017 and given there has been no indication from management that SUNPF will pre-fund this redemption, we can expect another primary transaction from SUN later in the year. In terms of maturities, the Tabcorp Subordinated Notes (ASX: TAHHB) were redeemed last week as outlined by management in February, while the remaining Colonial Subordinated Notes (ASX: CNGHA) that were not reinvested into PERLS IX (ASX: CBAPF) are set to be called this Friday. Crown Resorts (ASX: CWN) continue to progress with their on-market buy-back of the Crown Subordinated Notes (ASX: CWNHA) having purchased ~23% of total notes outstanding. In company news, Standard & Poor’s (S&P) revised its outlook on Genworth Australia from Stable to Negative following the loss of its second largest customer (which accounts for 14% of gross written premiums). Since early last year, we have cited Genworth’s capital management policies and broader downside risks in the housing market as key factors in our investment thesis for the group’s unlisted Subordinated Notes. On the other hand, Tabcorp and Tatts merger plans experienced a setback on Friday. Racing Victoria lodged an application to the competition tribunal to intervene in the deal stating the transaction would result in less competition for the next bidding of the Victorian retail wagering license (in 2024).

Chart 1: Bloomberg AUSBond Composite Index (Monthly) Chart 2: Bonds vs Equities 2016/2017 (Monthly) Chart 3: Term Deposit Review – February

Interest Rates Last week, US growth expectations took a step backwards as the bill to replace the Affordable Care Act (the Obama Health Care legislation) was effectively abandoned last Friday. The bill was viewed as the Trump administration’s first real attempt at its policy agenda, which sparked investor concerns for promised tax cuts and infrastructure spending. However, these pro-growth policies are still on the table and commentators have cited party interests are better aligned on tax-reform, but markets are now more cautious. Unsurprisingly, inflation expectations were revised downwards and the 10-Year US Treasury yield declined ~0.20%. In the previous weeks, the Australian 10-Year Treasury yield tested 3.00%, but followed suit with the US shedding ~0.30% to finish around 2.70%. However, short-term expectations for domestic interest rates remain unchanged. On the 24th of March 2017, the ASX 30 Day Interbank Cash Rate Futures April 2017 contract was trading at 98.505 indicating a 2% expectation of an interest rate decrease to 1.25% at the next RBA Board meeting (unchanged on the week prior).