Fixed Income: Weekly Strategy 13 May 2013

Adam Donaldson Head of Debt Research T. +612 9118 1095 E. adam.donaldson@cba.com.au Philip Brown Quantitative Strategist T. +613 9675 7522 E. philip.brown@cba.com.au Alex Stanley Interest Rate Strategist T. +612 9118 1125 E. alex.stanley@cba.com.au Tariq Chotani Credit Research Analyst T. +612 9280 8058 E. tariq.chotani@cba.com.au Tally Dewan Credit Research Analyst T. +612 9118 1105 E. tally.dewan@cba.com.au

Important Disclosures and analyst certifications regarding subject companies are in the Disclosure and Disclaimer Appendix of this document and atwww.research.commbank.com.au. This report is published, approved and distributed by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.

The good (semis), the bad (US Treasuries) and the ugly (the AUD)

US QE debate weighing on bonds and adding to a steeper domestic curve and AUD weakness from RBA rate cut.

Semi-governments enjoyed a strong rally last week as issuance flowed despite the lack of any real news from APRA.

Technicals supporting narrower cash spreads but we book some profits and remain cautious on CDS for now.

The RBA joined seven other central banks in easing policy last week. But ACGB performance was poor, as the market took direction from the rout in US Treasuries. The US 10Y yield is up 30bp on re-priced expectations for QE and as the USD outperforms. We re-iterate our views for: higher yields, a steeper curve, semi outperformance, consolidation in corporate CDS spreads and solid performance in AUD corporate cash.

The decisive break of resistance at 1.80% on Friday means US 10Y can move above 2.0% in our view. We expect this momentum to flow through to a steeper ACGB and swap curve. So we added 2/4Y swap steepener last Wednesday. The Aus-US 10Y spread hit the tight end of its 2012-13 range at 130bp after the RBA meeting, but has since widened to 135bp. We still think the RBA has more easing to do, which should be supportive of further spread tightening. But we look for a retracement towards 150bp before positioning for a tighter 10Y spread.

There’s a growing chorus calling for the FOMC to outline a clearer exit strategy to highly accommodative policy. To be sure, the recent soft patch in economic data and ongoing fiscal issues make timing this process a challenge. But the Fed must also take account of surging risk asset performance- especially record highs in equities and multi-year tights in credit spreads. We expect debate about the exit strategy to linger and contribute to higher US and global bond yields in 2H-13.

For now though, liquidity is free-flowing and financial risks are manageable. Issuers are taking advantage and hitting aggressive bids. Around $8bn of deals priced in the AUD market last week. Against this backdrop, most AUD spread product looks attractive. Even semis performed exceptionally well, tightening 10-15bp to swap. This supports our view (and key trades) for swap and semi outperformance to bond. We expect this performance to remain solid following APRA’s liquidity announcement and through Budget season (which kicked off with Victoria last week). The Commonwealth Budget tomorrow is likely to confirm ongoing deficits and growth in CGS supply. We expect to see only a gradual step-down in net new issuance.

Cash spreads as the market easily digested an avalanche of new issues and taps last week. Market technicals of limited supply and a healthy maturity profile continue to support cash spreads. The iTraxx Australia widened 2bp last week and while still trading inside our short-term trading range. We expect the iTraxx Australia to trend towards 105bp and consolidate there. We expect cash spreads to outperform CDS spreads in the short-term. After the strong performance, we have taken the opportunity to book profits on two of our trades (Long WSTP 3.625% Feb-23 and Long WOWAU 4.00% Sept-20), which are close/at our price targets. We have initiated a new U$ RV trade (see p2).

AUD plays catch-up to the big bond rally

Source: Bloomberg, CBA

Key Strategy Views

Tactical (<2 mth)

Strategic (>6 mths)

Policy rate* 2.75% 2.50%

3yr bond 2.75% 3.0%

10yr bond 3.25% 3.5%

10yr BEI 270 280

3/10 curve 60bp 70bp

10yr v US 140bp 110bp

3yr EFP 25bp 20bp

10yr EFP 50bp 40bp

iTraxx 115 105*Note: Strategy Team views. CBA Economics lowered their forecast to a 2.5% cash rate last week.

0.97

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ACGB 10Y Yield (LHS)

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Global Markets Research

Fixed Income: Weekly Strategy

2

Key Trades

Bonds

Trade Entry Current Profit Target Stop Comment Buy the ACGB Aug-15i vs the Oct-15 Receive ZCS at 2.65%.

250bp (30-Mar-12)

Hold: The trade is now (close to) an 8bp per annum annuity.

Buy the QTC Feb-20 to the NSWTC Mar-19

36bp (13-Nov-12)

30bp 6bp+2bp carry = 8bp

10bp 50bp Hold: S&P should keep Qld at AA+/Stable, but NSW AAA/neg to remain under pressure

Buy the Jan-18 ACGB vs the Feb-17 12bp (21-Nov-12)

14bp -2bp+1bp carry = -1bp

0bp 20bp Hold: There is a clear kink in the curve and a promising carry profile.

Buy the NSWTC Feb-17 against the NSWTC May-20

48bp (12-Feb-13)

49bp 1bp-2bp carry = -1bp

60bp 42bp Hold: This looks attractive on an RV basis, generally flattening is hurting

Buy the QTC Apr-16 against the ACGB Jun-16

54.5bp (4-Mar-13)

39bp 15.5bp +1.5bp carry = +17bp

30bp 65bp Hold: QTC Apr-16 looks cheap and the carry is attractive

Buy the TCV Nov-16 against NSWTC Apr-15

31.5bp (6-Mar-13)

24bp +7.5bp+2bp carry = 9.5bp

15bp 37bp Hold: TCV cheap in 2016 section, while NSWTC is dear. Prefer the mid curve.

Buy QTC Jul-23 on ASW basis 51bp (22-Apr-13)

37bp +14bp 25bp 42bp Hold: Positive credit & demand/supply dynamics should help narrow spreads. The stop has been pulled in & target lowered.

Buy TCV Nov-18 on an ASW basis (s/q)

11.5bp (3-May-13)

-1bp +12.5bp Take Profit: Strong move almost immediately.

2013 to date +48bps (including +1.5bp from closed trades)

Swap

Trade Entry Current Profit Target Stop Comment Short Feb-17, long Oct-14 ACGB on an ASW basis.

-29bp (30-Jan-13)

-27bp +2bp -10bp -35bp Hold: The swap-bond spreads curve is too steep.

2Y/4Y swap steepening trade 36bp 37bp +1bp 45bp 30bp New Trade: Combination of RBA cuts and long-end sell-offs should steepen the curve.

2013 to date 106.5bps (including +103.5bp from closed trades)

Credit

Trade Entry Current Profit Target Stop Comment

Buy WOWAU 4% Sep-20 (U$) on ASW basis

138.0 (23-Jan-13)

104.0 +34.0 100bps 157bps Book Profits Trade performed inline with expectations

Buy WSTP 3.625% Feb-23 (U$) on ASW basis

190.0 (7-Jan-13)

162.0 +28.0 160bps 205bps Book Profits Trade performed inline with expectations

Buy WESAU 6.25% Mar-19 vs WOWAU 6.% Mar-19 on ASW basis

30.0 (30-Aug-12)

18.3 +11.7 10bp 25bp Hold: Coles should continue to outperform Woolworths. Stop tightened.

Buy RIO 3.75% Sep-21 (U$) vs BHP 3.5% Nov-21 (U$) on ASW basis

43.0 (13-Feb-13)

43.5 -0.5 20bp 55bp Hold: RIO US$ long-end is steep relative

BHP U$ curve

Buy EIB 6.00% Aug-20 (A$) vs EIB 6.25% Apr-15 (A$) on ASW basis

45.0 (15-Mar-13)

41.2 +3.8 25bp 60bp Hold: Initiated curve flattener

Buy IFC 5.75% Jun-14 (A$) on ASW 12.0 (4-Apr-13)

9.0 +3.0 5bp 15bp Hold: ‘Washington’ names have under-performed slightly & are attractive over 3%.

Buy WPLAU 8.75% Mar-19 (U$) on ASW v. 1.18x WPLAU 5yr CDS

62.0 (17-Apr-13)

59.6 +2.4 Hold: 2019 bonds offer value at current levels. Hedged via CDS (1.18x Notional)

Buy NAB 2.75% Mar-17 vs WSTP 2.00% Aug-17 on ASW

15.0 (13-May-13)

15.0 0.0 5bp 25bp New Trade: NAB U$ 2017 wide relative to WSTP U$ 2017

2013 to date +120.7 bp

Global Markets Research

Fixed Income: Weekly Strategy

3

Short term interest rates

BBSW and OIS rates hit new lows after the RBA’s rate cut but have since rebounded with the falling AUD and sell-off in global bonds.

The RBA cut was in line with the Strategy team’s core view that cash will get to at least 2.5%, but transpired a little earlier than expected. We see distinct downside risks to the economy, as domestic demand fails to fill the large gap left by the pending peak in mining capex. Low inflation, fiscal tightening, deleveraging, the high AUD and tight financial conditions all point to further easing.

The RBA provided little guidance on their next move. August looks most likely for another cut. But their willingness to move early and their low inflation forecast means the door remains wide open for a move at any stage. Terminal rate pricing could easily fall further from the current level of 2.45%, unless the sharp fall in the AUD extends further (not our base case, but a very real possibility).

BBSW remains relatively tight to OIS at 13bp. We think spreads will remain tight given limited issuance and ample liquidity (seasonality will still drive spreads intra-month variation).

CBA’s Economics team changed their forecast to 2.5% cash rate. They forecast GDP to be around trend at 2.9% in 2013, with inflation remaining near the bottom of the 2-3% band.

Commonwealth bond curve

Despite the RBA rate cut, global yields have been moving higher, causing the ACGB curve to bear steepen this week. The 3Y sold off 8bp and the 10Y sold-off 15bp, for a 7bp steepening.

Notwithstanding RBA views, we continue to look for a modest sell-off this year. The Australian front-end is fully priced for another rate cut and has scope to move lower if data disappoints. However, much like this week, there is likely to be medium-term selling pressure from offshore which should see longer end rates slowly increase and the curve steepen.

The US sell-off that drove the Australian long end this week was driven by speculation of an early exit from QE, a likely foretaste of moves to come. We still see the US recovery as solid and look for yields to gradually lift this year as investors question the Fed’s QE commitment and move more decisively into risk assets. That points to a generally steeper AUS curve; we expect the mid-section (3-7Y) to underperform.

We view expected bond returns as unattractive with yields at these levels. The Federal Budget is likely to reveal a funding task for 2013 of around $50b which will add to selling pressure.

Commonwealth bond spreads

The run of weak global data has eased a little and, with risky assets continuing to rally, speculation of an early end to QE has taken US 10Y back to a six week high of 1.93%. The direct contrast with the RBA decision helped take the Aus-US 10Y spread to a seven month low of 130bp during the week.

We look for further AUS-US bond spread compression over time on fundamental grounds. But Australia’s high beta means we struggle to see that trade performing while risk appetite is picking up and yields are rising. QE restricts moves in the US but has less direct impact in Australia, leaving adjustment to include a strong AUD over time.

The spread has widened a little back to 135bp today. We look for a range between 130bp and 150bp in the near term.

AUD money market

ACGB curve

AUS-US 10Y bond spread

Source: Bloomberg, CBA

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(lhs)

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Aust 10yr bond yield (lhs)

US 10yr bond yield (lhs)

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: Bloomberg, C

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Oct-12 Dec-12

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Global Markets Research

Fixed Income: Weekly Strategy

5

Semi-governments

Semi spreads have snapped back to bond over the past couple of weeks, reflecting both an expected tightening to swap but also narrower bond-swap spreads. We continue to expect swap spreads to recede (as above) and thus view semis favourably.

Spreads have also begun to narrow to swap. We take profit on a TCV 2017 to swap trade today following a 12bp contraction. But we’re happy to hold our QTC 2016 trade to bond and the QTC 2023 ASW position on the view that semi spreads will tighten further.

Mid-curve swaps are attractive and underpin solid semi appetite around 4-7Y, where curves are steep and well over 2.75% cash. However, the back-end is now looking cheap by comparison, even after the rally.

While revenue remains under pressure (and borrowing requirements will thus increase somewhat), existing estimates point to a $10bn fall in the new funding requirement in each of the next two years as states tighten up to protect their credit ratings. At the same time, we expect bank demand to remain firm despite lack of clear (public) guidance from APRA that banks should further improve the composition of their liquid assets. AUD related selling should ease up before long, allowing semis to move sub swap.

RV and core credit views direct us to QTC 2020s against NSWTCs 2019s and to TCV 2016s against NSWTC 2015s. We see NSW as remaining under pressure from S&P, but believe QTC will hold firm at AA+. WATC has probably cheapened enough from prior premium levels. But TCV isn’t being adequately rewarded for its ‘safe-haven’ status, as confirmed in last week’s Budget.

SSAs

Technicals took hold of the markets last week as SSA A$ curves tightened between 3-10bp helped by improved sentiment, limited supply and large AAA’ maturity profile in May. Aided by the sharp rally in semis, the back end of the curve has finally begun to tighten and flatten curves. SSA A$ issuance continued to trickle with one new issue and one tap during the week. Year to date issuance is A$7.43b (vs 2012 YTD A$10.45b).

The ‘Washington and Asian’ names flat-lined in 2012. The long-end of their A$ curve has now also moved slightly wider, but out-performed the European names. While we find it hard to get excited about the ‘Washington and Asian’ SSAs at current levels, wider swap to bond spreads have taken some short bonds above cash, opening up value for short tenors.

Near term sovereign downgrade risk (that could impact repo eligibility) and the ongoing macro and political risks in Europe will be the main driver of sentiment & demand for European SSAs. With a government in Italy finally in place, we expect a slight improvement in sentiment for the European names in the short term.

Year-to-date buying continues to be focused on the short end of the curve (2yr & 3yr) causing steepness in the long end (5yr to 7yr). But we continue to hold on our EIB A$ 2020-2015 curve flattener to take advantage of this steepness and on the view that the back-end will catch up when AUD flows stabilise. We continue to believe global appetite for AUD fixed income will remain strong and the current steep SSA curve should start to flatten over the coming months. Diminishing Japanese selling should help.

2022 semi-govt to bond spread

Semi to swap spread

Select SSA A$ Curve

Source: Bloomberg

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1-Jul-11 1-Dec-11 1-May-12 1-Oct-12 1-Mar-13

QTC Semi (21-Jul-22)TCV Semi (17-Oct-22)WATC Semi (15-Jul-21)NSWTC Semi (01-Mar-22)

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QTC Semi (22-Jul-24)QTC Semi (21-Jul-23)SAFA Semi (20-May-21)QTC Semi (21-Feb-18)QTC Semi (21-Apr-16)NSWTC Semi (01-Mar-22)TCV Semi (15-Nov-18)NSWTC Semi (20-Feb-17)

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Global Markets Research

Fixed Income: Weekly Strategy

6

Credit Markets

CDS spreads consolidated last week after the strong moves the week before. The theme of last week was issuance with over A$7.7b of bonds easily absorbed by the market. While the new issues traded well, old issues were under slight selling pressure and moved out 1-3bp over the week. The iTraxx Australia widened 2bp over the last week.

Economic data and news flow in the US remains encouraging, but Europe continues to struggle. Domestically the RBA cut cash rate by 25bp to 2.75% citing low inflation and a high dollar. While the rate cut did little to move the A$ market, the lower cash rate adds to the attractiveness of the spread component in credit, providing strong underlying support for the sector. Along with global QE.

There were three new issues and one large tap last week, with Westpac’s A$1.3b tap being the highlight. All the deals are trading well in the secondary market with spreads tighter by 1-3bp over swap already. Primary issuance (A$38.56b YTD) is 9.5% lower than last year.

Limited supply, improving global sentiment, and large near term maturity profile (~A$43b worth of bonds maturing by June-end) are very supportive of tighter cash spreads in the near term. After the recent moves in CDS, we expect cash to outperform CDS in the near term.

Medium to longer term we remain optimistic and expect credit spreads – cash and CDS – to tighten given the supportive monetary policy globally and the relative health of corporate Australia. Central bank policies have successfully encouraged investors to take more risk and we expect them to hold that path at least till early 2014.

CDS Markets

The iTraxx Australia index is currently trading just off the tights of the year and the index is 52% tighter than its June 2012 levels. Since the start of 2013, the iTraxx Australia has performed very well relative to other major indices. However over the last couple of weeks the iTraxx Australia has underperformed the ITraxx Europe. The iTraxx Australia is currently trading 7bp wider than iTraxx Europe.

Telstra successfully secured licenses in the 700MHz and 2.5GHz band in the spectrum auction at a total cost of A$1.302b. The price was close to the reserved price and lower than consensus estimates. The investment will be funded predominantly through debt and payment will be made in the third quarter of 2014 (FY15). The lower than expected spectrum cost is a positive development. Telstra’s credit metrics could see some pressure in the short term. However, the high cash balance and strong cash flow generation capability gives the company a great degree of financial flexibility. On our estimates, with the current capex estimates, Net Debt /EBITDA (S&P method) would deteriorate to 1.65x in FY15 (FY13e: 1.61x) but will remain well below the 2.0x threshold level set by S&P’s ‘A’ rating.

The iTraxx Australia is currently trading through our year-end target of 105bp. While we are sellers of protection over the long term, we see limited upside from current levels. The iTraxx Australia is currently trading at Oct-2010 levels. We expect the index to give back some of the recent gains in the short-term and consolidate at around 105bp levels.

Select CDS Indices

Source: Bloomberg

2013 Maturity Profile (Corp+SSA+Semi+ACGS)

Source: Bloomberg

iTraxx Australia RV performance to Major Indices

Source: Bloomberg

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Global Markets Research

Fixed Income: Weekly Strategy

7

Financials

Macquarie Group reported a 17% YoY increase in net profits and, continuing with the recent trend set by banks, increased dividend for 2H13 and increased target dividend payout ratio to 60-80%. The FY13 results were credit neutral and the company should remain well capitalised even after taking into account the increase in dividend.

Australian banks continue to maintain their strong position relative to global peers. Wholesale funding cost pressures have eased notably and the banks continue to strengthen capital and liquidity positions. Asset quality in the banks’ domestic book continues to remain stable with NPLs at ~1.5% of total loans (well below the 1.9% post-GFC high). Although profitability and returns have remained strong thanks to lower funding costs, lower credit costs and cost controls, the banks face slight earnings headwind in a slow credit growth environment. The risk in the near term is growing competition especially on the back of slow credit growth.

The main concern for Australian banks is the liquidity ratio under Basel III. APRA has now confirmed it will not follow the Basel Committee by relaxing the Liquidity Coverage Ratio (LCR) implementation schedule. But is has adopted the bulk of the relaxed assumptions for cash inflows and outflows, pointing to a lower liquidity bill that we assess to be favourable for the banks.

Anaemic credit growth means Australian bank issuance should be limited to refinancing in 2013. The 4 Majors have consistently paid down debt and we do not expect this trend to change any time soon. Westpac in its earnings release noted that the bank had already completed ~55% of its term wholesale funding needs with ~42% of the new issuance in U$. Last week Westpac tapped the A$ market and raised A$1.3b.

With that back drop, we expect domestic and international investor demand for 4M term paper to remain strong. At current levels we look to the short end (<2yr) of the 4M A$ curves for a yield pick up over cash rates. Relative to the seniors, we continue to prefer the callable pre-Basel III LT2 bonds as they offer great value.

Non-Financial Corporates

We expect supply of Australian corporate paper to be limited due to limited capex plans (outside mining). We saw a barrage of new issues last week (totalling A$7.7b) but not one corporate issue. Australian corporates will continue to be opportunistic in tapping domestic markets. Over the last few years they have done well to manage and repair balance sheets (read: A-REITS). We expect limited corporate bond supply in the domestic market and for non-financial spreads to be well supported.

While it is tempting to consider higher yielding issuers in a spread tightening environment, and select names have performed well, we prefer to be positioned on an individual credit perspective. In select sectors we continue to expect best-in-class names to continue to outperform even though they trade at already tight spreads.

Mirvac released their strategic update and reaffirmed their FY13 EPS guidance last week. While the strategic review has rejigged the model a little bit, most of it remained the same. The company widened gearing target range from 20-25% to 20-30% and indicated its intention to acquire a ‘BBB+’ from S&P. One day after the strategic review the company announced the acquisition of 7 office properties in for A$625m (64% equity funded) inline with their newly laid down strategy.

Select 5Yr Aus CDS - 3M Absolute Change

Source: Bloomberg

Select CDS and Bonds

Source: Bloomberg. Bonds – Spread to ASW

Corporate Spread to ASW

Source: CBA

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bps NAB 7.25% 18WSTP 6.00% 17ANZ 5y CDSiTraxx Eu Sn FinCDX America Sn Fin

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Jan-09 Feb-10 Mar-11 Apr-12 May-13

bps AA (5yrs) AA- (5yrs)

A- (5yrs) BBB (5yrs)

Global Markets Research

Fixed Income: Weekly Strategy

8

We remain neutral on Crown Ltd (CWN). The company received approval to increase its stake in Echo from 10% to 23% by the NSW ILGA. We expect CWN to adopt a wait-and-watch attitude, till the NSW government’s steering committee gives their verdict by the end of next month. CWN credit metrics look soft (relative to credit agency expectations) for FY13. But based on our assumptions of normalised EBIDTA growth of 6-8% in FY14, we expect the credit metrics to recover and stay in line with credit agency threshold limits.

Covered bonds

Covered bond spreads have narrowed by around 100bps since issuance in late 2011. That 4yr paper is currently trading at a 40% premium to senior unsecured notes. This premium has widened over the year and points to a cautious near-term outlook. At current levels we believe that covered bonds are trading at fair value relative to the seniors. Covered bonds are viewed as defensive in nature and therefore in a narrowing market we expect the covered bonds to underperform the seniors and vice-a-versa.

To date, Australian banks have issued around A$53 billion covered bonds, leaving around $94b in spare issuance capacity. There has been modest issuance this year at about A$7.5bn, raising the risk it doesn’t reach our expected A$35bn in 2013. There is sizeable room for banks to tap the covered bond market, but the strength of other funding options (incl RMBS) should dampen issuance, particularly in AUD. Demand from offshore investors means new issues have been concentrated in USD and EUR. We do, however, anticipate other regional bank(s) to join the covered bond market.

RMBS/ABS

We expect RMBS issuance to be highly opportunistic and driven by prevailing market conditions. The four major banks (~80% of lending market) are well funded. However, for the smaller ADI’s, RMBS should remain a key source of funding and their share of total securitisation should remain high.

ABS/RMBS issue margins lagged the tightening seen in the broader credit market in 2012. But they narrowed markedly late in 2012 and early 2013. Prime RMBS transactions for 2-3 WAL have compressed by around 30bps compared to end of last year. We believe that the observed rally on issue spreads has reached a plateau and do not foresee any major contraction in the near term.

The arrears rate measured by various rating agencies shows a slight increase in Q1. We believe that natural disasters in Queensland and northern NSW, coupled with other seasonal factors may have contributed to the rise in arrears. We continue to believe that monetary easing should improve loan serviceability for 2013.

Suncorp-Metway Ltd. priced A$1.15b prime RMBS that was upsized from the initial launch of A$750m. The ‘Apollo Series 2013-1 Trust” has four classes of Notes. The Class A and Class B1 Notes priced tighter than the initial guidance by 1bp and 20bp, respectively. The Class A (3.4Y), Class AB (5.9Y), Class B1 (5.9Y), and Class B2 priced at 95bps, 170bps, 280bps and 325bps over 1m BBSW. As expected, the issue spreads remained consistent with recent deals and there was no further price tightening.

Aust banks A$ covered bonds vs senior debt

Source: CBASpectrum

Covered and Senior bonds

Source: Bloomberg, CBA

RMBS, ABS and CMBS Issue Margin (2-4yr)

Source: Bloomberg, CBA

30

60

90

120

150

180

210

Jul-11 Feb-12 Sep-12 Apr-13

bps WBC (18-Nov-16)

CBAC (25-Jan-17)

WBC (09-May-16)

WBCC (06-Feb-17)

WBC (20-Feb-17)

0

10

20

30

40

50

60

70

Aug-12 Oct-12 Dec-12 Feb-13 Apr-13

YTM

Sp

read

ove

r C

over

ed (b

ps)

WSTP 1.40% 2015 (U$)

WSTP 2.13% 2016 (€)

WSTP 5.75% 2017 (A$)

0

100

200

300

400

500

Jan-07 Aug-08 Mar-10 Oct-11 May-13

bps

CMBS

ABS

RMBS

Global Markets Research

Fixed Income: Weekly Strategy

9

iTraxx Australia: Key constituents and 3M snapshot

Source: Bloomberg, Prices as of 10 May 2013

5y CDS change over 3 months: 5y CDS performance over 3 months:

Issuer 3 month trend 10-May %: Absolute bps: Absolute %: Relative to A-iTrx bps: Relative to Index

(bps) (bps) + = CDS wider (- = CDS tighter) + = underperformed (- = outperformed)

A-iTraxx 100 -15.6% -18.5

ANZ 73 -28.1% -28.5 -12.5% -10.0

CBA 72 -29.1% -29.5 -13.5% -11.0

NAB 73 -28.1% -28.5 -12.5% -10.0

WBC 73 -28.1% -28.5 -12.5% -10.0

AMP 94 -21.1% -25.1 -5.5% -6.7

MBL 111 -23.7% -34.5 -8.1% -16.0

QBE 133 -45.0% -109.0 -29.5% -90.5

GPT 113 -6.0% -7.2 +9.6% +11.2

LLC 172 -33.8% -88.0 -18.3% -69.5

WFG 94 -22.0% -26.5 -6.4% -8.0

BHP 63 -8.0% -5.5 +7.6% +13.0

RIO 97 +0.8% +0.8 +16.4% +19.3

WPL 87 -9.4% -9.0 +6.2% +9.5

TLS 63 -6.7% -4.5 +8.9% +14.0

WES 63 -2.3% -1.5 +13.3% +17.0

WOW 63 +2.4% +1.5 +18.0% +20.0

CWN 135 -12.9% -20.0 +2.7% -1.5

TAH 146 -21.1% -39.0 -5.5% -20.5

AMC 86 -11.3% -11.0 +4.2% +7.5

CSR 94 -12.6% -13.5 +3.0% +5.0

AGL 70 +1.4% +1.0 +17.0% +19.5

QAN 168 -30.9% -75.0 -15.3% -56.5

Global Markets Research

Fixed Income: Weekly Strategy

10

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