Australian corporate bond market lags US

In an update on the US corporate bond market, Fitch reported that the US$5.1 trillion market was now 41 per cent larger than in 2009. Most of the US$1.5 trillion increase in the value of bonds outstanding has come from non-financial issuers, with considerable growth seen in some sectors.

Bonds issued by energy companies have increased by 85 per cent, healthcare and pharmaceuticals by 87 per cent, computers and electronics by 130 per cent and food, beverage and tobacco by 73 per cent.

However, over the first nine months of this year non-financial issuance increased by five per cent, while financial issuance increased by ten per cent. Investment grade financial issuance increased by 17 per cent, driven by commercial and consumer loan growth, as well as refinancing needs.

This issuance has changed the rating mix of the US corporate bond market to 78 per cent investment grade and 22 per cent sub-investment grade.

By way of contrast, ADCM Services data shows that the A$398 billion Australian corporate bond market has grown by only 29 per cent since the end of 2009, with around 90 per cent of the increase coming from financial and sovereign, supranational and agency (SSA) issuers.

The composition of the market has not changed with this group continuing to account for 87 per cent of the bonds on issue. However, with the appearance of unrated bonds in the market over the past couple of years, the credit rating mix has changed with sub-investment grade and unrated issues accounting for one per cent of outstanding bonds.

For local bank borrowers, the offshore bond market provided opportunities last week.

Westpac (rated AA-) early in the week raised US$2.0 billion for three years in a two tranche fixed and floating rate issue in the US s144A market.

The bank sold US$1350 million of fixed rate notes at a margin of 55 basis points over US Treasury bonds, and US$650 million of floating rate notes at a margin of 37 bps over Libor.

Later in the week Westpac sold £350 million of three year bonds in the Euromarket, at a margin of 35 bps over Libor.

In the same markets, Macquarie Bank (rated A) raised US$50 million for two years, priced at 27 bps over Libor, while the Australian branch of Rabobank (rated AA-) raised A$100 million for eight years, and Commonwealth Bank (rated AA-) raised £100 million for six years, paying a fixed coupon of 2.25 per cent per annum.