My personal pick for a comparable would be ANZ 4.5% USD SUB 03/2024 is trading at 103.73/104.35 (4/3.92%) which is giving a pick up of 1.8% over interest rates and would work out to be SGD 4.2% when swapped over.
So the mental figure should be 4.2% for 9 years which means 7 years should be somewhere between 3.8-4% ?
7 year swaps are at 2.385% today which means we are only getting a pick up of at most 1%.
GRAPH OF 7Y INTEREST RATE SWAPS
Graph of ANZ 5 year sub debt credit default swaps is 1.15% which means 7 years should be slightly north of that.
Profits have been tumbling and default risks rising.
14 Jan 2015 (Bloomberg) — Default risk for Australia’s biggest banks has risen to a nine-month high as the economy struggles amid tumbling commodity prices and wilting business confidence.
The average cost to insure debt issued by Commonwealth Bank of Australia, Westpac Banking Corp., Australia & New Zealand Banking Group Ltd. and National Australia Bank Ltd. climbed as high as 71.1 basis points on Jan. 6, a level unseen since April 2014, credit-default swap prices compiled by CMA show. That’s up from a six-year low of 43.8 basis points in September.
The RBA has estimated a shortfall of A$ 30 bio in capital for the 4 major banks in Australia after an inquiry in December last year and so here they come…..
“Dec. 8 (Bloomberg) — Commonwealth Bank of Australia and its three main competitors may need as much as A$30 billion ($25 billion) after a government-commissioned inquiry called for “unquestionably strong” capital levels, analysts said.”
After their 4.75% CNH issue done in Jan this year for CNH 2.5 bio which is trading at 98/99 (5.22/4.99%) cents now, I would expect this SGD bond to do better for the lack of supply onshore and lack of choice for investors as far as bank sub debts are concerned.
And this is a Basel III paper too and they do come cheaper as more will hit the street. The CBA CNH sub debt was launched at 5.15% following ANZ’s.
Alongside UOB, it looks presentable and its credit is a pick up on Stanchart, so there is nothing much for retail investors to complain about if you ask me.
Not my cup of tea but I am sure many would be happy with this fare.