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Thursday, 21 October 2021
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Differences of opinion make a market, and hybrid specialists disagree on the likelihood that NAB will call one of its hybrids early. It makes a major difference to the expected return on NABHA.
Hybrids are riskier than term deposits but investors are rewarded for the risk. Here is a simple way to consider if the reward is sufficient as the hybrid approaches an expected call date.
CBA's latest PERLS offer is directly offered to hundreds of thousands of investors who already hold CBA shares or other PERLS securities. How does it compare with the rest of the hybrid market?
The recent rise in the prices of bank hybrids fails to recognise the risks involved, and they now look expensive compared to alternatives available to both retail and institutional investors.
The margins (or spreads) on so-called AT1 bank hybrids have reduced significantly since the franking doubt was removed in the election, and investors should ask whether they are now rewarded for the risks.
Factors relating to technical adjustments, timing of bank reporting and offshore influences have created wider spreads on bonds and hybrids which should mean revert in time.
Hybrids are complex instruments but they can be viewed as a bond with an embedded option, and they convert to equity in certain circumstances. Investors should consider the risk of this happening.
Hybrids are no more ridiculous than shares for retail investors, especially bank and insurance company issues. The increase in common equity in banks has improved the quality, but investors must be paid for the risk.
Investors received a wake-up call to the potential risks of hybrid and subordinated securities following the collapse of Banco Popular Espanol, and the price falls in Australian hybrids shows the market took notice.
Subordinated debt issues are a less risky investment than capital notes and hybrids, but each transaction is different and not riskless. The current issue of NAB Subordinated Notes is just one example.
Issued just 18 months apart, two of CBA's preference share issues, PERLS VII and PERLS VIII, experienced vastly different market receptions and showed hybrids can also be volatile.
Almost every hybrid has a unique structure, and some of the conversion terms, especially following a ‘loss absorption’ event, are as ugly as a cane toad. Billions have been issued recently as investors search for income.
The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?
We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.
The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?
Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.
With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.
It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.