No more hybrid duds, please

Christopher Joye

Coolabah Capital

In The AFR I argue that it's time for the major banks to get "long-term greedy"---as my former Goldman Sachs bosses would implore---when it comes to pricing new deals in the fickle ASX hybrids market. Current market pricing implies hybrids are trading around fair value and smart hybrid issuers will offer investors an appropriate concession, or risk premia, for any new deal just as they do when issuing equity and wholesale bonds. This begs the question, What represents an attractive spread to the cash rate? Realm Investment House reckons a reasonable concession for a new 5 year major bank hybrid would be about 4.25 per cent over the bank bill swap rate. What the majors should not do is offer zero concession by "printing flat to the curve", especially when investors have zero liquidity in the first 5 weeks before listing. I also argue that there is likely to be more issuance than folks expect, which when coupled with a large number of major bank subordinated bond maturities in 2017 warrants wider spreads. Free (VIEW LINK)


Christopher Joye
Portfolio Manager & Chief Investment Officer
Coolabah Capital

Chris co-founded Coolabah in 2011, which today runs over $8 billion with a team of 26 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...

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