- Aussie dollar basis swap climbs as lenders sell offshore bonds
- Foreign issuance in Australia running 41% slower than in 2015
Australian bonds are starting to look more attractive to issuers from overseas after the so-called Kangaroo market had its slowest start to a year since 2009.
Foreign borrowers raising money Down Under are getting a more attractive rate to shift funds out of the Australian currency after a flurry of issuance by domestic banks in dollars and euros drove up the cross-currency basis swap. The 10-year Aussie dollar basis swap, which measures the discount Kangaroo borrowers receive, climbed to a six-month high after Westpac Banking Corp., Commonwealth Bank of Australia, Australia & New Zealand Banking Group Ltd. and National Australia Bank Ltd. all tapped offshore bond markets.
“The conditions are right on the issuance side at least, though obviously there still needs to be investor demand,” Ken Crompton, a Sydney-based fixed-income analyst at Deutsche Bank AG, said. “The frequency of deals has ticked up, although sometimes Kangaroo issuers take a little while to ramp up their program if conditions for Aussie issuance change quickly.”
Bond sales in Australia by international borrowers have slumped 41 percent this year to A$10.7 billion ($7.8 billion), data compiled by Bloomberg showed as of May 18. By contrast, offerings in foreign markets by Australian issuers climbed 4.4 percent to $36.9 billion. The 10-year basis swap has rebounded since dropping to a four-year low of 9 basis points in January and was at 22 basis points as of 11:15 a.m. on Wednesday in Sydney.
The Kangaroo bond market is dominated by highly rated quasi-government borrowers such as Landwirtschaftliche Rentenbank and Inter-American Development Bank, although commercial banks and non-financial companies also raise funding in the market. Most of the deals over April and May have been A$100 million or less. German development lender KFW has been the leading issuer of Kangaroo bonds since Dec. 31, followed by the International Bank for Reconstruction & Development and Canada’s Toronto-Dominion Bank.
“For the supranationals, the move we’ve seen recently in the basis makes it look a bit more attractive and I’m having more conversations with borrowers this week than I was last week,” said Oliver Holt, the head of Australian dollar-debt syndicate at Nomura Holdings Inc. in Singapore. “For financials and corporates it’s a more moderate tailwind.”
The recent spurt of issuance by Australian borrowers follows the release of profit figures by the major banks earlier this month and was led by Westpac’s five-part $4 billion offering. NAB’s issuance has included a 1.75 billion euro ($2 billion) transaction, while ANZ did a $1.5 billion deal and CBA placed a $1 billion offering.
While issuers may appear more willing, investors still need to come to the party.
Deutsche Bank estimates that demand may pick up, with the Bloomberg AusBond Composite Index poised for its biggest-ever rebalancing-related lengthening as A$19 billion of debt matures and new bonds are added. In addition, a weakened Australian dollar may boost offshore demand for the paper.
“There should be a lot of demand for duration, particularly toward the end of the month and that may coax people out of that preferred five-year bucket,” Crompton said. “Recent weakness in the Aussie dollar may also stir demand for Australian bonds from offshore investors, although the strength of that relationship over the past year has been mixed.”