Australian borrowers are selling the fewest bonds at home since May 2010 as yield premiums on corporate and state notes hit the highest in at least two years on concern Europe’s crisis will freeze global credit markets.
Bond sales fell 81 percent to A$1.3 billion in November from the previous month, according to data compiled by Bloomberg. The extra yield investors demand to hold Australian corporate debt increased nine basis points to 196 basis points more than the swap rate last month, while premiums on global company notes surged 40 to 244 and European spreads widened 59 to 270, Bank of America Merrill Lynch indexes show.
“While Australian corporates and banks are less affected than their counterparts in Europe and the U.S., their spreads are under pressure,” said Mark Mitchell, head of credit at Sydney-based Kapstream Capital, which manages A$3.7 billion. “The market remains like a young child, looking for reassurance and throwing a tantrum when it doesn’t get it.”
The government of the Northern Territory, the least populous of Australia’s eight major states and territories, paid 95.25 basis points more than the benchmark federal government rate on Nov. 9 for a A$500 million offering of 4.75 percent notes due 2017. That’s up from 59 basis points when Northern Territory Treasury Corp. came to market in May with a five-year offering, Bloomberg data show. Investors demanded higher premiums on Australian corporate debt relative to federal securities for a sixth month, the longest stretch since 1998, as European leaders struggled to resolve the region’s debt crisis.
Australia’s federal government lowered forecasts for the nation’s annual economic growth in its midyear review released Nov. 29 to 3.25 percent through June 30, from 4 percent in the May budget.
“Global economic and financial conditions have deteriorated markedly in recent months, and the risks to global stability from the European sovereign debt crisis have intensified,” Treasurer Wayne Swan said in a statement.
With prodding from the U.S. after a series of stop-gap accords failed to protect Italy and Spain from market turmoil, euro-area finance ministers started talks yesterday on channeling European Central Bank loans to cash-strapped euro nations through the International Monetary Fund.
Australian bonds rallied 3.3 percent in November, the most among 26 government debt markets tracked by Bloomberg/EFFAS indexes, as investors sought refuge from Europe’s turmoil in Australia, which has the fastest growth and second-smallest debt burden of developed nations.
The nation’s benchmark 10-year bond yield fell 58 basis points last month to 3.93 percent yesterday in Sydney, the biggest such drop since December 2008. It rose 6 basis points to 3.995 percent today, offering 192 basis points, or 1.92 percentage points, more than similar-maturity Treasuries.
Australian business investment jumped by the most in 15 years in the third quarter as the growth of mining projects accelerated, according to a statistics bureau report released yesterday. Australian companies forecast investment of A$158 billion in the year ending June 30, 5.1 percent higher than their estimate three months earlier, the report showed.
The value of mineral and energy projects being developed in Australia, the world’s largest exporter of coal and iron ore, rose 34 percent to a record A$231.8 billion as of Oct. 31, boosted by spending from Chevron Corp. and BHP Billiton Ltd., according to a Nov. 29 report from the Bureau of Resources and Energy Economics.
The reports came before data today that showed retail sales slowed in October for a third month while home approvals plunged for a second month. Home lending grew in October at the slowest annual pace since records started in 1990, according to RBA data released yesterday.
Australia’s dollar gained 5.3 percent this week to $1.0227 as of 12:34 p.m. in Sydney. The so-called Aussie will peak at $1.07 to $1.09 by March 31, according to Commonwealth Bank of Australia’s Aussie Dollar Barometer released yesterday, based on a poll of almost 900 local businesses.
The Markit iTraxx Australia index of credit-default swaps surged 29 basis points in November, CMA data show.
“The monthly move in iTraxx is reflective of an intensification in the European sovereign-turned-financial crisis,” said Chris Viol, a credit analyst at UBS in Sydney.
The premium investors demand to hold Australian corporate bonds instead of government debt increased 35 basis points in November to 282, the highest since July 2009 and the longest period of consecutive monthly increases since the seven months ending in February 1998, Merrill Lynch data show.
A separate gauge of premiums on industrial debt sold by companies including Telstra Corp. and Woolworths Ltd. rose the most since March 2009, according to Merrill Lynch.
Westpac Banking Corp. (WBC) was the only Australian borrower to sell debt domestically in May 2010, issuing A$450 million of floating-rate notes, according to Bloomberg league table data. The yield spread for Australian corporate debt climbed 11 basis points to 199 that month, the biggest jump since March 2009, the Merrill Lynch data show.
Sales have averaged A$5.5 billion a month in 2011, the data show.
“It is a bit of a perfect storm right now. We’ve seen primary markets close up and there’s been a definite withdrawal of liquidity,” said David Carruthers, a senior money manager in Sydney at AMP Capital Investors Ltd., which has about A$30 billion of fixed-income assets under management. “The outlook for has definitely deteriorated from a systemic point of view. Europe feels like it will have to get a whole lot worse before it gets better.”
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