World Bank Taps Demand for Higher-Yielding South Pacific Bonds

The World Bank’s International Bank for Reconstruction & Development priced its largest bond offering in Australia in more than four years as near-zero rates in major markets spur demand for higher-yielding alternatives.

The top-rated issuer increased its January 2019 Kangaroo bond by A$1 billion ($935 million) and also sold a new A$300 million note maturing in June 2025, according to an e-mailed statement from RBC Capital Markets, which managed the sale along with Nomura Holdings Inc. and TD Securities Inc. The last time IBRD raised more in Australia was in April 2010, when it completed a A$1.4 billion two-part deal. It priced NZ$800 million ($693 million) of 2019 notes last week, the biggest ever Kauri offering.

The borrower is taking advantage of investor demand for high-quality bonds denominated in the currencies of both Australia and neighboring New Zealand. Debt securities in both nations offer higher outright yields than notes in other developed markets such as Europe and the U.S. where benchmarks are being kept near zero. Australia’s official cash target is 2.5 percent, even after record easing, while New Zealand has begun lifting rates, helping to strengthen the currency.

“The IBRD has been responsive to investor demand for its bonds in both Australian (GACGB5) and New Zealand dollars,” said Ben Stewart, a Singapore-based director in the debt syndicate at TD Securities. “They are a cautious and prudent issuer, and when costs make sense and demand is there, they position themselves well to move quickly.”

The 2019 Aussie dollar notes sold today were priced to yield 31.5 basis points more than federal government bonds, while the 2025 securities are being issued at a 55.5-basis-point spread, according to the statement.

Biggest Kauri

IBRD’s New Zealand dollar transaction on June 13 was the biggest in the nation’s syndicated bond market this year and the largest-ever by an offshore issuer, according to Bloomberg data going back to 1999. It was priced to yield 57 basis points more than government debt and came a day after the Reserve Bank of New Zealand raised its benchmark for the third time this year, taking it to 3.25 percent.

The five-year Australian government bond yield was 3.08 percent today, while the New Zealand rate was 4.11 percent. That compared with 0.39 percent for German bunds and 1.69 percent for U.S. government securities.

Appetite for assets in the South Pacific nations has helped to buoy their local dollars, which this year are the two best performers versus the greenback among Group of 10 currencies. The Aussie dollar bought 93.49 U.S. cents as of 5 p.m. in Sydney today, up 4.8 percent since Dec. 31. The New Zealand dollar was at 86.66 cents, an appreciation of 5.5 percent.

To contact the reporter on this story: Benjamin Purvis in Sydney at bpurvis@bloomberg.net

To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net Andrew Monahan, Ken McCallum

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