2020-04-04 IFR Magazine

NON-CORE CURRENCIES

SEMIS REOPEN AUSSIE BOND MARKET

Cash-strapped state governments have

reopened the Australian bond market with a

mURRYûOFûmOATING

RATEûDEALSûTAILOREDûTOû

current buyside preferences.

In stark contrast to the gang-busting

REVIVALSûINûTHEû53ûANDû%UROPEû!USTRALIASû

primary market has been slow to pick up

speed as local asset managers became net

sellers of bonds to help meet elevated

redemptions.

Further drawdown pressure will follow

THEû!USTRALIANû0RUDENTIALû2EGULATIONû

Authority’s decision to allow

superannuation account holders to

WITHDRAWûUPûTOû!û53   ûINûEARLYû

RELEASESûINûBOTHûTHISûlSCALûYEARûANDûNEXT

h4HEû53ûANDû%UROPEANûlXED

INCOMEû

markets are far larger than Australia, where

the dominance of equities within fund

portfolios puts more pressure on managers to

free up cash through bond sales to fund

redemptions,” said a syndication manager who

worked on one of last week’s transactions.

The retreat of asset managers from the

market has left bank balance sheets as the

dominant buyside investor class Down

Under, where bank treasurers are busy

making reverse enquiries to put their liquid

cash positions to work.

Liquidity levels have been strengthened

INûPARTûBYûTHEû2ESERVEû"ANKûOFû!USTRALIASû

!BNû4ERMû&UNDINGû&ACILITYû4&&   ûWHICHû

gives authorised deposit-taking institutions

(mostly banks) access to funding for three

YEARSûATûAûlXEDûINTERESTûRATEûOFûJUSTû

The preference of banks for short-term

mOATING

RATEûASSETSûISûONEûOFûTHEûMAINû

reasons why Australian states have shifted

AWAYûFROMûTHEûlXED

RATEûLONG

TERMûBONDû

sales that were prevalent earlier this year.

Overall demand for state government

paper is also supported by relative value

investors looking to switch out of lower-

yielding Commonwealth government bonds

INTOûANOTHERûRAREû,EVELûûHIGH

QUALITYûLIQUIDû

asset that offers a better return.

ACGB yields have been driven down by

AGGRESSIVEû2ESERVEû"ANKûOFû!USTRALIAû

purchases since it introduced open-ended

QUANTITATIVEûEASINGûONû-ARCHûûTOûMEETûAû

three-year yield target of 0.25%.

FUNDING NEEDS

For their part, Double A and Triple A rated

semi-governments are keen to access

wholesale funding having been hit hard by

the coronavirus pandemic, which has sent

local spending soaring while tax receipts,

including stamp duty, have dwindled as

economic activity contracts.

/Nû-ARCHûû4REASURYû#ORPORATIONûOFû

6ICTORIAûINCREASEDûITSû!PRILûûmOATERûBYû

!BNûATûAûMARGINûOFûTHREE

MONTHû""37û

plus 38bp, while Western Australia Treasury

Corp and Queensland Treasury Corp have

also been adding to several of their

OUTSTANDINGû&2.S

NEW SOUTH WALES TREASURY CORP, which

RECENTLYûANNOUNCEDûAû!BNûADDITIONALû

SPENDINGûPACKAGEûSOLDû&2.SûFORûTHEûlRSTû

TIMEûSINCEûûWITHûAû!BNûTAPûOFûITSû

February 2025s following a reverse enquiry

from its panel banks.

TCorp subsequently went public with a

dual-tranche transaction on April 2

COMPRISINGû!BNûOFû

YEARûmOATING

RATEû

NOTESûANDûAû!BNûINCREASEûTOûITSûû

February 8 2024 bonds via joint lead

managers CBA, Citigroup, UBS and Westpac.

4HESEûPRICEDûATûTHREE

MONTHû""37ûPLUSû

39bp and EFP plus 58bp, respectively.

Domestic investors were allocated

approximately 87% of each issue, with bank

balance sheets buying 82% of the new TCorp

mOATERûANDûûOFûTHEûlXED

RATEûBONDûTAP

The SOUTH AUSTRALIAN GOVERNMENT FINANCING

AUTHORITY also returned to the public market

last week with its third one-year Aonia-

LINKEDûmOATING

RATEûNOTEûOFFERINGûTHATû

ULTIMATELYûRAISEDû!MûVIAûARRANGERûANDû

sole lead manager ANZ.

“Given the recent market dislocation,

especially towards the long end of the curve,

we took an opportunity to access funding

FORûûMONTHSûINûAûFORMATûWEûLIKEûWITHOUTû

adding to the dislocation,” said Andrew

Kennedy, director for treasury services at

3!&!

“An opportunity presented itself

following bilateral talks to raise an initial

!Mû7EûKEPTûTHEûDEALûOPENûPROVIDINGû

price certainty and transparency, which

helped attract more interest in the note

WHICHûWASûINCREASEDûTOû!MûTOûAûMIXûOFû

banks and investors.”

Pricing of the notes at Aonia plus 55bp is

HIGHERûTHANûTHEûMARGINûFORû3!&!SûPREVIOUSû

two Aonia-linked trades, but is roughly

inside those notes’ original swap levels,

according to Kennedy.

“On the buyside, the investors were

happy to buy short-dated notes that offer

THEûSAMEûRETURNSûASûTRADITIONALû""37

LINKEDû

&2.SûWITHûLESSûDAY

TO

DAYûVOLATILITYvûHEûSAID

3!&!ûRAISEDû!MûFROMûAûONE

YEARû&2.û

last December, priced at 40bp over daily

compounded Aonia, having printed the

INAUGURALû!ONIA

LINKEDûISSUEûINû*UNEûûAû

!MûONE

YEARûmOATERûWITHûAûBPûMARGIN

!ONIAûISûTHEû2"!SûOVERNIGHTûCASHûRATEû

which is published daily and offers a risk-

free alternative to the domestic Bank Bill

3WAPû2ATEû""37 ûTHEûCONVENTIONALû

reference point for Australian dollar

mOATING

RATEûNOTES

3!&!ûALSOûPLANSûANûOPENûTAPûOFûANYûORûALLû

of its 2022, 2024, 2026, 2028, 2030 and 2032

BONDûLINESûFORûANûAGGREGATEûOFû!BN

NEW ZEALAND RAMPS UP ISSUANCE

The NEW ZEALAND TREASURY (Aaa/AA+/AA+) is

looking to syndicated sales to help meet its

ELEVATEDûBONDûISSUANCEûFORECASTûFORûlSCALû

YEARû

Projected gross bond supply in the

CURRENTûlSCALûYEARûHASûBEENûINCREASEDû

AGAINûBYû.:BNû53BN ûTOû.:BNû

as part of the country’s response to the

#OVID

ûOUTBREAKû4HISûFOLLOWSûAû.:BNû

INCREASEûTOû.:BNûONû-ARCHû

The Treasury has mandated ANZ, BNZ,

CBA and UBS for a syndicated tap of the

.:BNûû-AYûûûNOMINALûBONDû

issue this week, while there may be

another syndication offering before the

lSCALûYEAR

ENDûONû*UNEûûEITHERûVIAûAûNEWû

nominal bond issue or a tap of an existing

bond line.

7ITHû.:BNûSOLDûINûTHEûCURRENTûlSCALû

year, NEW ZEALAND DEBT MANAGEMENT is stepping

up its tender operations and will now

release monthly schedules for each month

in advance.

For April, three nominal bond tenders

will be held each Wednesday raising a

COMBINEDû.:MûATûAûTIMEûANDû.:BNû

INûTOTALûOVERûTHEûlVEû7EDNESDAYSûSTARTINGû

WITHû!PRILûSûTENDERûOFû.:Mû!PRILûû

Sû.:Mû!PRILûûSûANDû

.:Mû!PRILûûS

Treasury bills on issue are forecast to be

.:BNûATû*UNEûû.:BNûHIGHERûTHANû

FORECASTSûUPDATEDûONû-ARCHû

The previous syndicated issue last

3EPTEMBERûRAISEDûTHEûMAXIMUMû.:BNûTHEû

Treasury was targeting when it opened the

û-AYûûûLINE

NZGBs historically enjoy some scarcity

VALUEûTOûREmECTûTHEûCOUNTRYSûRELATIVELYûSMALLû

government debt, which has been around

20%–25% of GDP for several years, while

they again offer the highest yield, in

absolute terms, among Triple A/Double A

rated sovereigns.

&ORûEXAMPLEûTHEû-AYûû.:'"SûWEREû

YIELDINGûûLASTû&RIDAYûWHICHûCOMPARESû

WITHû!USTRALIANû53û5+ûANDû'ERMANû

BENCHMARKû

YEARûYIELDSûOFûûû

0.33% and minus 0.43%, respectively.

Liquidity can be a problem, partly because

New Zealand has not met the size

requirements of Citigroup’s nominal World

Government Bond Index, but the country

should soon become eligible as sovereign

supply is ramped up.

LGFA PLANS BOND

With regional administrations also facing

SEVEREûlSCALûPRESSURESû.EWû:EALANDSûLOCAL

International Financing Review April 4 2020 37

BONDS SSAR

6 IFR Bonds 2327 p 25 - 65 .indd 37 03 / 04 / 2020 20 : 28 : 59