In The AFR I analyse the pricing of the new ANZ AT1 hybrid security (ASX: ANZPG) from several perspectives and conclude that it looks about 20 basis points (0.2%) cheap relative to secondary spreads including the landmark new US dollar AT1 issued by ANZ in June, which has become the most liquid Aussie bank hybrid in the world. But there are wrinkles, like the newly-introduced 8% CET1 "potential" default (ie, non-payment of income) trigger for AT1s that the market is completely oblivious to and which will raise the spectre of AT1 defaults way above the traditional CET1 trigger of 5.125% that everybody has historically focussed on. Also, if you use only the ASX major bank AT1 curve (second chart below) the new ANZ deal actually looks fairly priced with a mid interpolated spread of ~477bps---it is only once we add in the US$1bn 10 year AT1, which is trading at about 465bps over today swapped back to Aussie dollars, that the new AT1 from ANZ looks like it is ~20bps cheap. The supply-demand technicals are also quite favourable...Free (VIEW LINK)
Christopher Joye is Co-Chief Investment Officer of Coolabah Capital Investments, which is a leading active credit manager that runs over $2.2 billion in short-term fixed-income strategies. He is also a Contributing Editor with The AFR.