Transactions from 16 separate borrowers have been priced in the past five days, exceeding the 13 that sold bonds in the week ended Nov. 24 and the most on record in data compiled by Bloomberg stretching back to 1999. Nine of this week’s issuers were supranational or quasi-government borrowers attracted by a yield premium over the swap rate that narrowed to the least in 2 1/2 years, according to a Bank of America Merrill Lynch index.
The flurry of issuance follows holidays in Australia and the Asian region that held back supply even as redemptions and a rising global hunger for risk helped fuel demand for credit. Uncertainties about Australia’s federal budget were also reduced this week, spurring investor appetite for the securities.
“Demand has been pent up and people have been looking for an opportunity to put money to work,” James Arnold, the Sydney-based head of Citigroup Inc.’s Australian dollar syndicate, said in a phone interview yesterday. “Everyone was waiting to get the budget out of the way and before that there was Golden Week in Asia and Easter, so this has really been one of the first clear windows in a while to do deals.”
The transactions raised A$6.7 billion ($6.3 billion). Excluding sales by Australia’s federal government, that’s the largest weekly volume since January 2013.
National Australia Bank Ltd. (NAB) was the largest issuer of bonds this week, pricing A$2.4 billion of five-year notes at 85 basis points more than swap rates, while CFS Retail Property Trust Group (CFX) and debutant BWP Trust (BWP) were among the non-financial companies selling debt. Qantas sold its first bonds since being stripped of its investment-grade credit rating, placing A$300 million of eight-year notes at a 400-basis-point spread.
Asian Development Bank was the biggest issuer among so-called quasi-government names, selling A$1.2 billion of five-year securities yesterday in a two-part transaction with both fixed-rate and floating-rate notes.
Other top-rated borrowers offering notes this week included the Australian Capital Territory and Germany’s KFW, while the Canadian province of British Columbia brought its inaugural Kangaroo bond to market. Svensk Exportkredit and Korea Development Bank, which both have lower ratings, were also among the government-backed issuers selling debt.
“In the supranational and sovereign-backed space, there have been opportunities at different points on the curve that appeal to different types of buyer,” said Citigroup’s Arnold, one of the managers on the ADB transaction.
The average spread over the swap rate for so-called quasi-government issuers dropped to 11 basis points this week, a level unseen since 2011, according to Bank of America data. The average gap for company notes in Australia was as little as 98 basis points, near the more than six-year low of 97 basis points reached last month.
“When spreads are tighter there is an incentive for issuers to hit the market because they may have concerns that the pricing won’t last, but the fact that the market’s playing catch-up after a lull is probably a bigger driver of this surge in activity,” John Sorrell, the Sydney-based head of credit at Tyndall Investment Management Ltd., said in a phone interview yesterday.
Decisions to sell Kangaroo bonds, notes issued in Australia by foreign-based borrowers, are also influenced by the cost of moving funds out of Australian dollars. The 10-year Aussie dollar basis swap, which measures the cost of switching interest payments based on the London interbank offered rate, or Libor, for those linked to Australia’s bank bill swap rate, was at 31 basis points today, having climbed from 28 basis points on March 6. The higher the level, the greater the discount for overseas borrowers.
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