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Weekly Highlights

Last week, the domestic equity market continued to retrace recent gains as the probability of a September rate hike by the US Federal Reserve increased due to the Boston Fed President Rosengren (a FOMC voter) warning of an overheating US economy (from interest rates being too low). As a result, the ASX200 Accumulation Index is down 1.73% from the start of September. Bond markets were also lower with the Ausbond Composite Index and Ausbond Credit Index falling modestly by -0.54% and -0.22% respectively as bond yields rose.

 

Primary market activity remains elevated with Qantas, Transurban and Suncorp all expected to meet debt investors in coming weeks.

 

The NAB priced a subordinated bond (Tier 2) deal, issuing a mix of both fixed ($150 million) and floating ($650 million) rate tranches equivalent to a margin of 2.40% p.a. over the bank bill swap rate. While at the low end of the guidance range, the transaction was relatively cheap. These securities were sold to wholesale investors only (no prospectus being issued) and are not listed on the Australian Securities Exchange.

 

Woolworths released their 2016 Annual Report on Friday, commenting that the five-year non-call period of the $700 million Woolworths Note II (ASX Code: WOWHC) ends on 24 November 2016 and that they may be refinanced by a hybrid containing similar characteristics (i.e. would have a 50% S&P equity credit), or a combination of debt and equity in equal proportions. Woolworths further commented that the equity component of the Notes would be satisfied by the shares issued under the Dividend Reinvestment Program, implying that from a debt perspective only $350 million of a new hybrid is required (we also note that Woolworths has ample headroom via the bank facilities agreed upon earlier in the year to absorb the debt component as well, meaning that Woolworths also have the option not to issue a new security).