Daily Flows

• In the immediate aftermath of yesterday’s ratings updates, we saw flows into BoQ and Bendigo FRNs as investors took advantage of the regional banks’ new classification into the same 30% risk-weighting bucket as the major banks.
• The addition of Judo to the A2/BBB ratings bucket presents an attractive investment opportunity to investors whose investment policies only allow A2 names or above, given their traditionally attractive term deposit & NCD rates and high funding demand.
• NCD margins of +50 from an A2/BBB name represent the stand-out value today.

Upgrades Across the Board for Non-Major Banks

• Yesterday saw the market-moving announcement that most non-major Australian banks had received upgrades to their credit ratings from S&P.
• S&P cited the ongoing strength of Australian regulatory & governance standards as a key factor in reducing industry-wide risks, along with a simplification of business models away from insurance & wealth management.
• The Australian banking system is now considered the lowest risk level on the S&P scale globally, joining Canada, Hong Kong, and Singapore.
• Key ratings changes were to Bank of Queensland and Bendigo & Adelaide Bank, who both saw upgrades to their long-term rating from BBB+ to A-.
• Judo Bank was upgraded from A3/BBB- to A2/BBB, with most other mutual and non-major banks upgraded from A2/BBB to A2/BBB+.