News

Volatility in Europe did not halt Australian issuance as deal activity sparked to life this week. Three high-grade Kangaroos came to market along with a syndicated semi-government bond, two residential mortgage-backed securities and a New Zealand domestic transaction.

Heritage Bank (Heritage) has added to the healthy deal flow in Australia's retail fixed income market with the May 17 launch of the first senior retail transaction of the year. The bank is seeking A$125 million (US$124 million) in the five-year transaction, which is its second approach to the domestic retail market having issued A$50 million of subordinated notes in October 2009.

National Australia Bank (NAB) became the third of Australia's big four banks to price a retail hybrid or subordinated notes offer in 2012 on May 21, doubling the indicative volume of the deal to A$1 billion (US$1 billion) of tier two capital with a 10-year maturity and five-year call date. The deal priced at 275 basis points over bank bill swap rate (BBSW) or the tight end of its 10 basis point margin range.

Preliminary ratings have been assigned to a new Westpac Banking Corporation (Westpac) residential mortgage-backed securities (RMBS) issue, in what will is the first such issue from a big four bank since the same issuer placed a A$1.6 billion transaction in October last year. The new deal, Series 2012-1 WST Trust, has a volume of A$1.15 billion (US$750.8 million) across its three tranches.

With the dust having settled on Australia's first nonconforming residential mortgage-backed securities (RMBS) transaction of 2012, issuer and leads on the transaction say the asset class's appealing margin and niche investor base could lead to a clutch of further deals over the medium term. There may also be positive connotations for the prime RMBS market given the attractive pricing achieve by Pepper Homeloans (Pepper).

Deal flow in the week beginning May 8 barely flickered with one supranational, sovereign and agency issuer returning to the Kangaroo market and one vanilla domestic appearing on the New Zealand front. There was no new action in the Australian securitisation market.

Australia's return to federal budget surplus will be accompanied by reduced Commonwealth government borrowing in 2012/13 according to the Australian Office of Financial Management (AOFM). In a May 9 announcement – a day after the federal budget – the AOFM revealed expected Commonwealth government bond issuance of A$35 billion (US$35.36 billion) for the next full financial year, A$23 billion below the expected 2011/12 programme.

After a quiet period in April, ANZ returns to the domestic market with a A$1.5 billion (US$ 1.54 billion) transaction, its first public AUD senior unsecured benchmark since October 2011. Though 80 per cent of ANZ funding was completed in the first half of its 2011/12 financial year, the bank says strong investor enquiry encouraged the deal after the bank's first half result posted on May 2.

The arrival of May encouraged some activity but the Australian market continued to be reserved overall. Deals priced included a Kangaroo and two floating rate note transactions from a bank and a corporate issuer. In addition, one non-conforming residential mortgage-backed security deal was priced. The New Zealand market remained quiet.

A new nonconforming residential mortgage-backed securities (RMBS) deal was priced by Pepper Homeloans. Pepper Residential Securities Trust No. 9 has eight classes of floating rate notes and is the first nonconforming RMBS offered in Australia this year.

Westpac Banking Corporation's results for the first half of the 2011/12 financial year, released on May 3, show the bank to have a similar on- and offshore composition of its total wholesale funding mix as its peer, ANZ Banking Group (ANZ). Westpac disclosed a domestic currency proportion of wholesale funding excluding securitisation of nearly 38 per cent at March 31 2012; at its first half results announcement a day earlier ANZ revealed an equivalent figure of 39 per cent.

The Treasury Corporation of Victoria (TCV) is moderately increasing its funding expectation for 2012/13 to A$6.97 billion (US$7.17 billion) from the 2011/12 revised requirement of A$6.2 billion. The funding programme announcement on May 3 also projects a series of funding cuts, to A$1.99 billion by 2015/16.