News

The entry of New Zealand government bonds (NZGBs) to the Citi World Government Bond Index (WGBI) – which analysts believe would significantly increase the market's profile with global investors – is a somewhat more distant prospect that recent reports suggest. A substantial quantity of NZGBs is held by official institutions in New Zealand, removing them from outstanding volumes for index purposes and thus keeping the market below the inclusion threshold.

Market participants are divided over whether demand and supply dynamics in the Australian nonconforming residential mortgage-backed securities (RMBS) market will continue to allow deal prints at the same frequency as they have emerged in recent weeks. Two new nonconforming deals have priced in April following the reopening of the market in March, and recent demand for the product has been robust.

KangaNews data show the first full quarter of 2013 producing differing issuance outcomes across sectors in Australia and New Zealand, as some hit record levels while others failed to match 2012 deal flow. In both markets, domestic bond issuance as a whole was down on the previous year's levels, with compensation coming in the form of Australia's relatively vibrant corporate and securitisation markets, and a Kauri renaissance in New Zealand.

The New Zealand Debt Management Office (NZDMO) cites market preference for immediate liquidity in a new benchmark line as the driver of its decision to use syndication for the listing of a new nominal benchmark line for the first time. The NZDMO placed NZ$2 billion (US$1.7 billion) in its new 2020 bond on April 10, and says it will consider further issuance of this type in future.

Intermediaries ascribe the relatively measured first quarter of the year for Australian corporates in offshore markets primarily to supply rather than demand factors. In fact, with two well-subscribed euro deals already in the books some bankers believe global credit markets are sufficiently robust that 2013 might see additional diversification outside US dollar issuance by Australian names.

The long-awaited revised Standard & Poor's (S&P) methodology on assigning equity credit to corporate hybrids, which was published on April 2, has sent a pair of Australian issuers into damage control mode. Both the immediately affected firms – Santos and Tabcorp Holdings (Tabcorp) – immediately responded to negative rating actions, though taking differing approaches.

The April 2 decision by the Reserve Bank of Australia (RBA) to leave the Australian cash rate unchanged, at 3 per cent, came as little surprise to local analysts. However, while post-decision commentary generally interprets the reserve bank's accompanying statement as little changed from the previous month, there is a gradually-growing suspicion that further rate cuts may now be less likely than had previously been expected.

The market for corporate issuance in the Australian domestic market was solid if unspectacular in the first quarter of 2013, although following three new deals from mid-March intermediaries are optimistic about a steady pickup in supply.

Kiwibank issued its first-ever covered bond on March 25, selling CHF150 million (US$158.1 million) in a December 2020 maturity deal that is also the bank's first public, unguaranteed issue into a foreign currency market. The new deal was widely distributed to a wide range of investors, and Kiwibank says it hopes to return to the Swiss franc market periodically.

Interest in high-yielding Australian dollar income assets is increasingly driving issuance opportunities for unrated borrowers. Demand is being found in the high net worth, private banking and middle market sectors on- and offshore, paving the way for successful transactions issued under retail and wholesale documentation.

A supportive local wholesale investor base made the New Zealand dollar option the most attractive source of long-tenor funds for Transpower at the time of its recent 10- and 15-year issue, the borrower says. New Zealand's corporate market has now seen three transactions in 2013 and there is cautious optimism that a solid year of issuance could develop.

Kauri market intermediaries believe the size and quantity of recent New Zealand dollar transactions from supranational, sovereign and agency (SSA) borrowers is helping to increase visibility of – and interest in – the market for both potential issuers and investors. While the bulk of Kauri buyers, especially internationally, are likely to continue their preference for frequent-borrower names, there may also be opportunities for new and returning SSAs.