Bond markets rallied (price up, yield down) last week following news that the US launched a cruise missile attack against Syria. Treasury yields fell on the headlines but this was partially offset by comments later in the week from the New York Federal Reserve President William Dudley downplaying any pause in short-term interest rate normalisation. The weak non-farm payrolls (employment) result on Friday did not help this normalisation in interest rates, but the detail in the result is likely to maintain pressure on inflation. Credit markets were marginally softer (albeit there have been almost no sellers for weeks) given the political tension which is building as a result of the US airstrikes. But this cautious tone was absent in the primary market where investors continue to scaleback. In the listed market, Challenger Capital Notes 2 (ASX Code: CGFPB) completed the offer last week ($460 million) and will begin trading today. In the wholesale market, Telstra completed a $1 billion multi tranche deal, IMF Bentham raised ~$41 million in its second unrated bond offering and Centuria Capital Group (ASX Code: CNI) upsized its notes offering to $100 million. As we stated last week, the headwinds to global regulatory consensus (for banks) means APRA may have to move on their own. In a timely response APRA Chairman, Wayne Byres, provided an update: “we will be looking at many components of the capital adequacy framework, but given its position as a dominant asset on the balance sheet of the banking system, the adequacy of capital requirements for housing-related risks will be a critical part of that assessment”. As we stated in January 2017 (First Half Outlook: Where to from here?) any change to capital adequacy is likely to come from changes in risk-weighted residential mortgage assets. While we expect this is probably inevitable, APRA has always been cautious in its transition phases and we don’t expect it to be any different this time. Finally, in positive news, Standard and Poors upgraded its credit rating on Alumina last week to reflect the sound performance of Alcoa World Alumina and Chemicals (AWAC) and the strategic alignment of Alumina and Alcoa Corp. This is in line with our expectations as described in our research report released in February 2017.