2012 second best for New Zealand bond market
New Zealand enjoyed its second best year for domestic and international corporate bond issuance in 2012.New Zealand companies and financial institutions issued the equivalent of NZ$15.1 billion of bonds in international markets, with only 58 per cent of issuance being from New Zealand banks. The 2012 issuance volume was only just behind the NZ$18.7 billion of international issuance undertaken in 2010, of which financial institutions accounted for 66 per cent. Auckland Council (AA) got 2013 underway with a CHF100 million, 11-year bond issue off of its recently established Euro Medium Term Note Programme. The bonds were priced at five bps over mid-swaps.NZ$10.3 billion of corporate bonds were issued in the domestic market in 2012, just a little short of the 2008 record of NZ$10.6 billion. No issuance has been reported for 2013 so far.A forthcoming test of the domestic market will be the arrival of the first call date for NZ$885 million and NZ$449 million of tier-one hybrid capital issued by ANZ National Bank and Bank of New Zealand, respectively. The hybrid notes can be called by the banks in April, and probably will be for reputational reasons.The test for the market will be the willingness of investors to accept the new hybrid notes that will be offered as a replacement for the old ones. The new notes will have to be Basel III compliant and, therefore, will include provisions for loss absorption upon the pulling of a capital or non-viability trigger.Loss absorption means that the notes must be written off or convert to ordinary equity if one of the triggers is activated. With both banks being subsidiaries of Australian banks, a write-off of the notes may be the only option.