Five-year market reopens for Westpac

Westpac launched and priced a A$800 million, five-year bond issue yesterday at a margin of just 135 basis points over bank bills/swap. At 135 bps, the indicative margin is just a little wider than where five-year credit default swaps closed for the bank the day before, at 128 bps, according to Markit data.

ANZ was the last of the big four to undertake a five-year bond issue in the domestic market in November. At that time, it paid a credit margin of 100 bps on the bonds while its five-year CDS margin was 66 bps.

Westpac yesterday sold A$300 million of fixed rate bonds and A$500 million of floating rate notes.

Since the beginning of June there have been two other major bank issues to test the water in the domestic corporate bond market. Westpac was first with a A$750 million addition to its April 2013 FRNs, which was privately placed at a margin of 83 bps over bank bills, just seven bps wide of where the FRNs were originally issued in April.

National Australia Bank added A$1.0 billion to its April 2013 fixed and floating rating notes last week, at a margin of 85 bps, an increase of just eight bps over the original issuance level.

Both issues seemed opportunistic and were priced inside of levels suggested by three-year CDS margins for the banks. With this latest five-year public bond issue, Westpac appears to have proved that there is strong and pent-up investor demand.

There was no issuance in the market in May and issuance volume for June now stands at A$3.8 billion. Issuance over the first four months of the year averaged A$10 billion per month.

That Westpac should return to the market so quickly is not surprising. It has the largest annual wholesale funding requirement of the big four banks, at around A$45 billion. That said, all four remain well advanced with their annual wholesale funding programs but Westpac would have the least capacity to stay out of wholesale markets for any length of time.