Guarantee too tempting for Westpac

Westpac was the next of the big four banks to return to the market last week, selling a total A$2.5 billion of debt. Westpac also became the first of the Australian banks to issue, in the domestic market, senior bonds with a term to maturity of more than five years. Westpac raised A$1.4 million for seven years at a margin of 130 basis points over swap.

Westpac also issued A$1.1 billion of five-year government-guaranteed bonds at a margin of 30 bps over swap. Pricing at this level confirms the recent widening in the five-year credit spread for the major banks to 100 bps, on an unguaranteed basis, as evidenced by ANZ's issue the week before.

Surprisingly, Westpac's issuance in a guaranteed format attracted no comment or explanation. However, this is the first government-guaranteed issue by one of the big four banks since Westpac last issued in this format on August 13.

What would have prompted such issuance after a hiatus of three months? Was it required because of APRA's proposed changes to liquidity risk management?

If the answer to the last question is yes, then this is a setback for the return to 'normality' in the domestic corporate bond market. It also means it will be some time yet before the regional banks and smaller ADIs will be able to issue unguaranteed debt of their own.