Bond investors can't get enough

Philip Bayley
Over the first half of 2009 domestic investors have regained their appetite for corporate bonds. Over the six months to June 2009, banks, supranationals and one or two others sold a total of A$44.8 billion of corporate bonds in Australia's domestic market. This is 84 per cent of the total issuance seen in 2008 and 106 per cent of the issuance in 2007.
 
The Australian banks, the local operations of international banks and triple-A rated kangaroos have accounted for 97 per cent of this issuance. Government guaranteed bank issuance has accounted for 64 per cent or A$28.6 billion. The Australian banks have accounted for 65 per cent of the total issuance in their own right, in both guaranteed and unguaranteed formats.

The market has bounced back with a vengeance and is now on track to set a new annual record, well in excess of the A$62.3 billion record set in 2006.

Issuance in June totalled A$10.4 billion, making it the largest month so far this year and the largest since March 2006, when A$11.2 billion of bonds were issued. And only three days into July, the trend has continued with A$4.5 billion of bonds already issued - A$4.0 billion of it being government-guaranteed bank issuance and 81 per cent from the local operations of international banks.

In a busy three days last week ABN Amro Bank Australia was the first to issue, raising A$1.75 billion spread over two quite short maturities. A$750 million was issued for just 364 days and the remainder was issued with an October 2010 maturity - A$675 million floating and A$325 million fixed. All notes were issued at a spread of 45 basis points to swap/bank bills.

ING Bank (Australia) followed with a A$1.5 billion floating rate note issue, priced at 55 bps over bank bills for a February 2012 maturity.

Bank of Queensland was the only Australian bank to issue, raising A$400 million floating and A$350 million fixed, at 65 bps over swap/bank bills for an October 2012 maturity.

Landwirtschaftliche Rentenbank was the only non-bank issuer, being a German government agency. Rentenbank raised A$450 million for five years, fixed at a spread of 108.5 bps over CGS. The issue came as Standard & Poor's affirmed the 'AAA/Stable/A-1+' ratings that it assigns to the agency based on the expected extraordinary support that would be provided by the German government, in need, and despite the recent revision to S&P's rating methodology for government-related entities.

Similarly, S&P affirmed its 'AAA/Stable/A-1+' ratings on that other well known (in the domestic market) German government agency, Kreditanstalt fuer Wiederaufbau, on the same basis.

Elsewhere in the domestic bond market Wide Bay Australia disclosed the structure of the planned sale of $400 million in mortgage-backed securities, and in which the Australian Office of Financial Management is the cornerstone investor.

Through the WB Trust 2009-1 Wide Bay plans to sell A$100 million of Class A-1, 'AAA/AAA' rated notes; A$260 million of Class A-2, 'AAA/AAA' rated notes; A$2.4 million of Class AB, 'AAA/AAA' rated notes; A$16.8 million of Class B, 'AA' rated notes; A$11.6 billion of Class C, 'A' rated notes; and A$9.2 million of Class D 'BBB-' rated notes.

Finally, Suncorp Metway announced to the ASX the results of its buyback tender for up to A$500 million of its subordinated debt.

Suncorp purchased A$405 million, at face value, of subordinated debt from across the eight issues it had specified. Suncorp bought back the debt at a cost to it of A$310 million: that works out at nearly a 25 per cent profit.