News
New Zealand's bond market started the year on the front foot and its participants are bullish on the prospects for future supply. The most eye-catching deal to date has come from Fonterra Co-operative Group (Fonterra) which, despite the likely limited opportunities for other issuers to replicate the trans-Tasman transaction, is hailed by bankers for its innovative approach to maximising competitive tension in the New Zealand domestic market.
After the AB tranches in Bendigo and Adelaide Bank (BEN)'s recent Torrens Series 2014-1 Trust (Torrens 2014-1) were the most hotly-bid of the tranches offered, the Australian Office of Financial Management (AOFM) announced on February 28 that it has sold the bulk of its holdings of class AB notes of residential mortgage-backed securities (RMBS) tranches.
Improving demand for New Zealand dollar paper from offshore investors saw the World Bank price its largest – and the market's second largest ever – deal on February 18. The borrower and joint lead managers on the transaction point to significant offshore participation with a strong bid out of Asia as a main driver for the deals success.
Financial institution (FI) deal flow in the Australian domestic market has started to pick up. It was slow to get off the mark in 2014, partly due to the competitiveness of offshore pricing. While bank funding executives agree that relative pricing between domestic and international options is little changed from the start of the year, solid investor appetite for Australian-dollar paper is drawing them to issue at home.
The results of a recent survey of retired self-managed superannuation fund (SMSF) trustees suggest these fund holders are broadly satisfied with an asset-allocation profile which affords little weight to fixed-income product. Meanwhile, although most of the surveyed SMSF investors hold at least some fixed-income assets – and more plan to do so – there appears to be little interest in annuities.
The successful inclusion of structural nuances in Australia's first residential mortgage-backed securities (RMBS) transaction of 2014 suggests that long-awaited regulatory changes in the Australian securitisation market are starting to filter down to deal level. The transaction garnered 50 per cent offshore interest, leading to intermediary confidence about the extent to which new technologies and structures could help to grow Australia's securitisation universe.
Momentum in Australia's domestic corporate bond market could be stalled in early 2014 by highly appealing conditions internationally. Intermediaries say improving basis-swap dynamics, spread compression and the ongoing desire on the part of global investors to seek yield could draw more corporate borrowers towards, in particular, European issuance in 2014.
The Australian Prudential Regulation Authority (APRA) has provided local banks with more detail around how the Australian liquidity coverage ratio (LCR) regime will work from implementation at the start of 2015. Significantly, in a January 30 letter to banks APRA reveals that the Reserve Bank of Australia (RBA) has determined that local banks can reasonably be expected to hold, in aggregate, 30 per cent of the total supply of Commonwealth and semi-government securities.
Attractive pricing in offshore markets has seen the usual early-year providers of domestic AUD issuance opt to take funding outside the domestic market. While domestic AUD issuance volumes have lagged behind historical norms so far for the year, market participants tell KangaNews there is no shortage of demand and volumes are anticipated to pick up following Chinese new year.
In the wake of Australia's first wholesale-only issue of tier-two bank debt under Basel III rules, the transaction's issuer and lead managers say increased investor comfort around the new-style securities supported a significant oversubscription and price tightening. Bendigo and Adelaide Bank (BEN) sold A$300 million (US$265.6 million) of tier-two notes with, according to the issuer, a 2.5 times oversubscription.
The size and tenor of the second Dim Sum bond issued by Fonterra Co-operative Group (Fonterra) highlights the significant development in the market in recent years. This development, say intermediaries, means that the market is edging closer to participants being able to access Dim Sum liquidity for global funding purposes.
The coveted return of L-Bank to Kangaroo issuance highlights the importance of both domestic and international investors in the Australian market, say intermediaries. The deal also emphasises the position of the AUD as a global currency, thereby opening the door for other sectors and countries to consider the market.