Australia to Sell Longest-Dated Debt in Three Decades
(Corrects to show that sale would be longest-dated bonds in three decades in headline, first paragraph of story initially published on Oct. 9.)
Australia plans to sell 16 1/2-year debt tomorrow, the longest-maturity bonds on record in government data stretching back three decades.
The 3.25 percent April 2029 issue is expected to yield around 17 to 20 basis points more than the April 2027 security, currently Australia’s longest-dated note, according to an e- mailed statement from the Australian Office of Financial Management. The funding arm said the syndicated issue will be of benchmark size, without providing further details.
“It will be a welcome addition to the existing bond lines,” said Su-Lin Ong, Sydney-based head of Australian economic and fixed-income strategy at RBC Capital Markets, which is a joint lead manager on the transaction. “It’s often been asked why Australia doesn’t have a true longer-dated bond. It’s broadly consistent with general demand for Australian fixed income.”
The new bond would be the longest maturity sold by the Australian government since at least 1982, AOFM data show. The last time the country extended its yield curve was in October 2011, when it sold $A3.25 billion ($3.3 billion) in 15 1/2-year securities. Demand for Australian debt, the highest-yielding sovereign AAA securities, helped drive down yields to records this year, with the benchmark 10-year note touching 2.698 percent in June.
The 10-year rate was at 3.09 percent as of 12:12 p.m. in Sydney, while the 2027 note yielded 3.42 percent.
The proposed pricing for the 2029 bond “looks rather cheap,” according to a client note from Commonwealth Bank of Australia (CBA)’s Philip Brown, Adam Donaldson and Alex Stanley. “We strongly suspect the bond will price within the nominated range. But we think the bond will offer value when it does price. Further, we expect the bond to slowly settle and tighten.”
Australia has sold A$13 billion of the A$35 billion in Treasury bonds it plans to offer in the 2012-2013 financial year, according to AOFM data. Issuance will shrink this year as the government seeks to end four years of budget deficits.
After accounting for maturities of A$26 billion, net issuance for the current financial year is expected to $9 billion, government data show. The net figure for 2011-12 was A$44 billion, with gross issuance of A$58.2 billion.
Citigroup Inc., UBS AG and Royal Bank of Canada’s RBC Capital Markets unit are joint lead managers for the 2027 issue, while Barclays Plc, Deutsche Bank AG and Westpac Banking Corp. (WBC) are co-managers, according to the AOFM.
Following the syndicated issue, Australia won’t sell any more of the 2029 bond line until February, the funding arm said.
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