CBA's bold bond move
In the first big domestic issue of senior debt by a local bank in nearly two months, Commonwealth Bank sold $1.25 billion of bonds, which will mature in four years. The bonds will pay investors a yield of 85 basis points above the benchmark bank bill swap rate.
The spread of 85 points - a gauge of the cost of the debt to the bank - is similar to the cost of wholesale debt that faced banks earlier this year, when markets were more subdued. It is also significantly better than the cost of funding implied by credit default swaps, a widely used proxy for funding costs.
The head of Australian credit research and strategy at Deutsche Bank, Gus Medeiros, said the bonds were priced at a relatively attractive level for the bank.
"It shows good investor demand. It's been a while since the major banks have tapped the domestic market with a benchmark deal. This probably supported [the] transaction," he said.
The raising comes after a turbulent period on money markets, triggered by US Federal Reserve chairman Ben Bernanke signalling he might rein in the Fed's $US85 billion-a-month stimulus program later this year.
Frequently Asked Questions about this Article…
Commonwealth Bank sold $1.25 billion of senior bonds in the domestic market — its first big domestic senior debt issue by a local bank in nearly two months. The bonds will mature in four years.
The bonds paid a yield of 85 basis points (0.85%) above the benchmark bank bill swap rate. That spread is a common way to express how much extra return investors receive over the benchmark and is also a gauge of the bank's cost of borrowing.
According to the article, the 85‑point spread is similar to the cost of wholesale debt banks faced earlier this year when markets were more subdued, and it is significantly better (lower) than the funding cost levels implied by credit default swaps.
The deal was described as seizing on signs of a recovery in investor confidence: the relatively attractive pricing and the fact it drew demand after a pause in benchmark domestic deals suggest investors were willing to buy bank senior debt again.
Gus Medeiros, head of Australian credit research and strategy at Deutsche Bank, said the bonds were priced at a relatively attractive level for the bank and that the transaction showed good investor demand, likely helped by the gap since the last major domestic benchmark deal.
The issuance was senior debt (senior bonds) issued domestically by Commonwealth Bank, and the bonds will mature in four years.
Commonwealth Bank raised $1.25 billion, and the 85 basis‑point spread was described in the article as a competitive or relatively attractive cost to the lender compared with recent wholesale and CDS‑implied funding measures.
The article notes the raising came after a turbulent period in money markets triggered by US Federal Reserve chairman Ben Bernanke signalling he might rein in the Fed's $US85 billion‑a‑month stimulus program later in the year, which had previously unsettled markets.
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