News

In an exclusive interview with KangaNews following the release of the Queensland budget on June 4, Tim Nicholls, treasurer of Queensland, says tackling revenue undershoots has been a key part of the government's budgetary process. He emphasises the state's commitment to controlling expenses and acknowledges that further debt reduction is needed in order to regain a triple-A rating.

The International Monetary Fund (IMF) recently published the results of a survey of the currency allocation plans of a swathe of global reserve managers. The results make happy reading for Australian dollar borrowers, indicating that the currency remains close to the top of the list of reallocation targets as reserve managers continue to seek additional diversification.

Kangaroo market participants ascribe the recent flurry of supranational, sovereign and agency (SSA) Kangaroo issuance to a global tightening of spreads and rolling interest in maturities. While a tapering off of issuance during the European summer is expected, most market participants believe fundamentals remain sound – despite the recent precipitous decline in the value of the Australian dollar.

An improving budgetary position in New Zealand – including a reaffirmed projection of a return to surplus in 2014/15, ahead of Australia's latest projections – allowed the New Zealand Debt Management Office (NZDMO) to lower its funding requirement for the next two financial years. Analysts suggest the NZDMO's funding strategy could significantly reduce nominal tender supply in the coming year.

Analyst and rating agency response to Australia's federal budget is broadly supportive given the context of significantly weaker revenues and the consequent prolonged period of deficit. However, some economists believe little has been done to address structural weaknesses, especially on the revenue side, which further reduce the chances of a balanced budget position on average across the economic cycle.

Half-year results published by National Australia Bank (NAB) on May 9 further illustrate the rapid tightening of wholesale funding margins in recent months. However, outstanding debt issued in a higher spread environment means the NAB's average term funding cost across the portfolio has only recently stopped rising and will not fall significantly unless the current issuance environment is maintained or further improves.

A projected return to surplus for the state government of Victoria in the 2015/16 financial year will see the funding requirement of Treasury Corporation of Victoria (TCV) fall below A$2 billion (US$2.04 billion), the corporation revealed on May 8. Analysts, ratings agencies and traders responded broadly positively to the May 7 Victorian state budget, especially the government's commitment to ongoing cost savings despite declining revenues and a challenging political position.

Analyst responses to the May 7 rate cut by the Reserve Bank of Australia (RBA) largely coalesce around the view that the 25 basis point cut was a marginal call based on benign inflation conditions, with weaker employment data also contributing. Commentary points out the RBA's language in explaining the cut did not vary significantly from that outlining recent decisions to hold, supporting existing views on reserve bank tone.

On May 6 the Australian Prudential Regulation Authority (APRA) released a second consultation paper covering Australia's Basel III liquidity reforms, revealing it does not plan to follow the lead of the Basel Committee on Banking Supervision (BCBS) by easing the requirements on banks – or the timeline for their implementation.

The announcement in early April of a massive programme of quantitative easing by the Bank of Japan (BoJ) is expected to suppress local bond yields even further and consequently force Japanese funds into international investments. But Japanese market watchers say that move has yet to begin, and the falling yen continues to cause repatriation of assets.

With a third of the year over ANZ has so far maintained its recent record as the leading intermediary in the Australian and New Zealand bond markets. According to KangaNews's league tables, ANZ lead managed more deal volume in 2013 to the end of April than any other bank when issuance from domestic and international borrowers is taken into account.

Half year results released by ANZ Banking Group (ANZ) on April 30 show an increasing gap between the bank's cost of deposit funding and wholesale margins, with the bank paying around 50 basis points more for deposits than for three-year wholesale debt by the end of March this year. Overall, ANZ's funding mix remained largely stable compared with six months previously.