Extreme equity-market volatility characterised the first full week of February but – apart from a marginal widening in major-bank senior spreads, especially at the front end – high-quality credit remained resilient.

“Volatility is to be expected when markets have rallied almost uninterrupted for two years,” comments Mostyn Kau, head of group funding at ANZ Banking Group. “It is not surprising that we have had a pull back – but our spreads are largely unchanged. At this stage it is a healthy correction.”

The major banks’ consistent approach to investor engagement over an extended period has likely paid off as markets enter what could become a more uncertain phase. Alex Bischoff, Westpac Banking Group’s head of group funding, comments: “We have had a consistent approach to our funding strategy for a long number of years and investors know we will look to take advantage of markets when we see good liquidity. Our investor base knows a marginal widening isn’t going to have a material impact on how we see our funding.”

Bank funders are factoring in the potential for periods of volatility to remain, though. “I think this is a year when, as QE starts to unwind and we continue to work through these global dynamics, seeing how these play into credit markets will be very important,” Kylie Robb, head of group funding at Commonwealth Bank of Australia, asserts.

As yet, the major banks are making no move to amend term-issuance strategy despite the apparent change in market environment. Robb confirms: “We view the market as very attractive for issuance at present, and we have been able to take advantage of low spread levels as well as curve flatness. To the extent these dynamics change we will have to think about the likely implications on our funding programme.”

National Australia Bank (NAB) had a residential mortgage-backed securities (RMBS) transaction in motion at the exact time the wave of volatility reared in the equity market. But Australian market participants suggest the choice of instrument was well suited to this sort of environment (see p14). Although senior-unsecured spreads widened by a handful of basis points, RMBS spreads were largely unaffected.

Protracted volatility may necessitate a more opportunistic approach to funding. “At the moment our funding strategy remains unchanged,” NAB’s head of group funding, Eva Zileli, tells KangaNews. “If volatility is prolonged we may move to a different mindset, where if liquidity is available we will take it. In the last year we have been able to trade more to suit our cash-flow needs because the market has been consistently strong. If we start to see sporadic bursts of liquidity we will have to consider adjusting our issuance approach.”