Basis swap attracts kangaroos

European Investment Bank also helped the issuance totals with a A$1.5 billion bond issue with an April 2015 maturity. The bonds priced at Commonwealth government bonds plus 83 basis points or around 24 bps over swap. This is the largest, single tranche, issue by any kangaroo issuer, let alone supranational or agency.

KfW added A$350 million to its March 2017 line to take outstandings to A$850 million.

KfW added A$200 million to the line in early September and originally opened the line at A$500 million in March 2007 at a margin of 12 bps under swap. This latest addition was priced around 39 bps, 9 bps wider than in September.

Nordic Investment Bank completed kangaroo issuance for the week with a A$200 million addition to its August 2014 line, on Friday. The top-up was priced at 27 bps over swap - somewhat tighter than the 36 bps paid when the line was opened in August - and takes outstandings to A$500 million.

With the Australian dollar - US dollar basis swap as wide as 35 bps for five years, the margins paid by these kangaroo issuers don't look too bad at all, relative to Libor. The massive volume of funds raised by the Australian banks offshore has pushed the basis swap to what must be becoming prohibitive levels.

If this doesn't attract substantial kangaroo issuance, which would help to reverse some of this widening, the Australian banks will have to scale back their offshore debt issuance.

And just to illustrate the point, ANZ raised €1.0 billion for three years in the Euromarket at 57 bps over mid-swaps. After allowing for the Euro-Australian dollar basis swap this equates to around 107 bps over swap in the domestic market. This is considerably wider than where three-year margins were seen only last month, at 62 bps.