 And it's welcome to Friday night, your money, your call. I'm Mark Todd from the NAB, and I'm joined by Nick Chaplin, who's also from the NAB, and an old friend. And Mark Bailey from FIG. Mark and I have had lots of chats over the years about different parts of the credit curve. And I want to get Mark on the show to talk about Brexit. I want to talk about Trump. I want to talk about inflation. We have lots to chat about. We've got some emails already, but feel free to email us. It's 1-330-3435. The email is yourmoney at SkyNews.com.au. And we've got Nick to talk about listed origination and what's happening in the... And basically in the hybrid market and some of the ideas that you might have around, what's happened to my price? It's all rallied. And so, is that a good or bad thing? Is the Trump rally affecting each and every one of you? And therefore, what do you do? Do you believe in it? If you're Mexican, do you really believe that's happening? Mark, welcome. FIG, how are things? What's new? Yeah, good to be back, Mark, a long time, no speaking. Do you only come on when the football season's not on? So you coach on Friday nights and doing all the footy stuff. So you're doing the right thing by coming on this early in the year. Yeah, and I coach my daughter's rugby team, so it's kind of out of season for me at the moment. But in terms of FIG, you know, we're going really well at the moment. We've obviously had some management changes, but Jim Stennings come back in the business. You know, he's an ex-CEO. He's been 14 years there, so... But outside management changes, you know, DCM's done 35 deals in the last four years, one and a half billion raised and unrated. We've got a couple of kind of funds gilding capital. He's seen deals all the time in the high-to-mid teens, you know, putting investors and issuers together. A lot of property deals around at the moment. And then also on the managed income portfolio, the MIPS, that's up to almost $150 million, assets under management. For last year, there's several different funds, but last year the Income Plus fund did... I think it was 4.6 after-fees, which is pretty good. Kind of a split 50-50 investment grade. What are we buying in that? Yeah, it's a rough mix between 50% investment grade, 50% sub-investment grade. Duration is reasonably short in that, so it's only 1.75 years, so there's quite a few floaters in there and short-dated corporate bonds as well, so... What's your role at FIG now? Yeah, my role, I'm head of credit strategy and research, and so I'm involved in the new issue process, putting out research on corporate bonds as well, as doing the kind of weekly wire kind of macro topics as well, which I'm sure we'll touch on a few of those today. Yeah, absolutely. Nick, welcome. Thank you, Mike. Nervous for you, something going into Year 7, just ready. I'm nervous for him. Yeah, exactly. You know, when they go into Year 7, it's a big deal. They go into that big school, and they're all ready to rock and roll. But that hasn't distracted you from the mighty work at the NABU being super busy. You and I were talking about the fact that you got only a few days off at the Christmas period, and that's because the pipeline looks pretty strong. There's a lot of corporates talking to you about listed origination. Is that... Let's just talk first about your role, but is that also within the context that there wasn't that much in the last, in the fourth quarter? There wasn't that... They were all looking at the Trump. They were going, OK, the US election is a reason to probably not do too much because we want to see how it plays out. Well, it was also interesting that I think what needed to be done in 2016 had been done already, and we're moving into 17 now with a focus now on a different asset class. It's more the rolling or, you know, the refinancing of the tier two capital trade, the subordinated debt trades of the major banks now. So the potential for people to call the bond at the first available opportunity, they'll... Do you want to talk the viewers through an idea of a role? What it actually means? Yeah, so being subordinated debt and for banks, they need the approval of APRA to actually call it, but the expectation from investors would be that anticipation there is that they might call it, and that gives them the need to then put that money back to work again, because if you pull out your money, which is earning, in the case of the NAB subordinated debt issue, which comes up in June, 2.75 over the bill rate, that's today it'll be getting you 5.5%. So you've got to think about what you'd do with that money once it's come out again. Yeah. And that's coming up for all of the major banks and some of the regional issuers as well. So the stuff that FIG is originating is of a... It's a high yield. So what Nick's talking about is much of a conservative. It's a conservative piece, so there's this idea that the bond market, you know, don't buy the bond market, it's all bad. The bond market is a one-dimensional thing, and one of the things I'm trying to get everyone to understand in the show is I've got two people from the bond market and they're completely different parts of the bond market. Yeah, but interestingly, I guess similar to Nick, we're seeing a lot of corporates looking to issue as well, so we've got a pretty hefty pipeline for 2017, you know, of which some will come off and some won't, but there's a big issue of demand, because banks are pulling back slightly around the edges in terms of what they're willing to lend, you know, the capital requirements are higher for those unrated corporates that we typically... So that'll be yours will be a high yield space? Correct, yeah, so ours is high yield corporate piece, generally speaking. We have done some insurance companies, but, you know, it's a high yielding piece, you know, six, seven, maybe even up to 10%. Yeah, right, and obviously the corresponding risk, because, you know, the idea that if you want to borrow at 10%, you are looking to get some juice, so therefore there's some risks associated with that. Risk return spectrum, that's fine. Absolutely, I understand. You've brought some charts in about what's driving the market at the moment. Do you want to walk me through, you know, the idea? And Nick, predominantly a lot of the stuff, you did cube last year, but Mark's making the point, a lot of it is the financial, it's at the capital, what the banks need in making the banks much more cautious, much more stable entities. That's right. In that funding. Yeah, it's... A lot of it is financial, and, you know, the investors do want corporate diversity. Yeah. It's tricky getting that corporate diversity in a... So walk me through this chart. This chart, really, I just wanted to show you this because this is two years' worth of history. So you can see it here from January 15 on the left through to January 17 on the right. You see, these are the trading margins. So in other words, if today a major bank was to come out and issue a tier one capital instrument, something that would absorb losses in a really, really bad time, and it would need to be that, where that margin would be. So we're over here on the left at about... Where the yellow line starts at about 3% over the bank bill rate. It got all the way up in terms of trading to about 570 basis points, or 5.7% over the bill rate at the bank. So the peak is at the pearls... Is that eight? Pearls, eight. Seven. Seven, actually. Yeah. You've written down there, pearls, eight. So the peak... Well, when... It was peaking when the pearls, eight issue came out. Oh, I see, they came out at 5.2, and that was where the market was trading much higher and everyone complained about the CBA at 5.2, you know, lower than the market price. But of course, it just brought home to everyone the fact that these were very high margins. They were, and what had been happening to previous transactions up until that point, and the CBA deal really turned the market around, they got... In the end, they got the margin right. But up until that point, there'd been some deals that were offering higher and higher margins. They weren't necessarily performing on listing because the credit spectrum was widening, so they weren't necessarily offering enough for that time. As soon as the CBA's came out with pearls, eight, that's turned the market around. There were other aspects to this. There was a supply view in the market that the banks would need to provide a lot more capital... They'd do equity rates in hybrids, yeah. And it was actually equity, not hybrid Q1. That turned the market right around. There was also, you know, the ability for banks to... So, for the people who are watching on the show who are now colour blind, rest assured we've got another chart that makes it a bit more simpler. And it'll be black and white. We'll bring that up. And that's more in the black and white genre. So, this one's a little bit simpler. The other one showed a whole bunch of different deals. This is the average of those deals, and you can see how it's traded up to that point in time, which was very early last year in 2016, and over the last year in We've Come. We're now about 30 basis points with the bottom of the line on the right above the average, the running average, the long-term average for where these things go. So, you could argue there's a little bit more run to go. But it's not... You can see right at the end it started to trade more sideways. So, in terms of capital price, the Perl 7 obviously issued at par as a spread widens. That capital price falls. What did it get down to, and where is it trading at now? Well, Perl 7 was... Well, they're all issued at $100, it's natural.