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 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.