Debt market uncomfortably quiet in second quarter
Average monthly issuance in the domestic debt capital market fell to A$4.2 billion in the June 2010 quarter, down from a monthly average of A$10 billion in the March quarter, and with no issuance at all in May. The trend for the remainder of the year is not encouraging, with the leading CDS indices explaining why.Issuance for the first half of 2010 in the domestic corporate bond market is running almost in line with those at the same time last year, at A$44.6 billion. Supranationals and sovereigns accounted for 41 per cent of debt sold; domestic banks, 27 per cent; foreign banks, 26 per cent and corporates a mere five per cent. In the first half of 2009 investors funded A$45.8 billion of new debts. Rolling 12-month issuance at the end of June 2010 stood at A$99.8 billion, with A$101.1 billion of bonds being issued in 2009.However, subdued conditions in the most recent quarter, the subdued outlook for the global economy, and recent waves of unease over the soundness of European banks are making the sale of debt securities in any market tough to achieve at present.The chart below shows the movement in three key measures of credit pricing: the Aussie iTraxx, the European Main, and North American CDX five-year, investment grade, credit default swap indices over the last 12 months. The North American and European indices are back at the same wide levels they were a year ago. Fortunately, the Australian index does not have the same discount attached to it and is tracking tightly with the other two, for the moment. Of course, it is no coincidence that the S&P/ASX 200 index finished the half at close to an eleven-month low.