Rate cut no spur to debt capital market

The first week of February was more notable for what didn't happen rather than what did in the debt capital market. Issuance in the domestic wholesale corporate bond market slowed to a trickle, especially among sovereign and supranational issuers.

Could it be that, following the cut in the official cash rate (and the fact the Reserve Bank seems poised to cut again next month), there is less demand now among international investors for Australian dollar denominated bonds issued by the SSAs?

For international investors, holding Australian dollar denominated bonds has not been a winning bet since the dollar peaked at just over US$1.10 at the end of July 2011.

At least, that is for those who value their assets in US dollars.

More recently, however, the Australian dollar peaked at just under US$0.95 in early July last year, has depreciated by almost 20 per cent since then and is expected to fall further. Of course, demand will remain among those who must hold sizeable foreign currency reserves and those engaged in a race to the bottom in the currency wars.

The other thing that didn't happen last week was an announcement from National Australia Bank of an additional tier one capital raising. NAB released its first quarter results on Thursday but remained silent on the capital issue that it had flagged in mid-December.

Admittedly, NAB did say at the time that the launch of an issue would be subject to market conditions. Following its gazumping by ANZ, NAB may now consider market conditions to be less than conducive.

As for what did happen last week, the highlight was a A$900 million two tranche, five-year issue from the Sydney branch of Rabobank (rated AA-). A$750 million of floating rate notes and A$150 million of fixed rate notes were priced at 105 basis points over the bank bill swap rate.

In the SSA sector, Province of Quebec (rated A+) and Bank Nederlandse Gemeenten (rated AA+) tapped existing lines. The former added A$100 to its March 2025 line, taking the total outstanding to A$650 million. The increase was priced at a margin of 67.5 bps over CGS.

Paying a margin of 62.25 bps over commonwealth government securities, BNG added just A$50 million to its February 2018 line. The size of this line now sits at A$200 million.

Privately, Bendigo and Adelaide Bank (A-) sold a A$125 million of one-year floating rate notes with a spread of 50 bps over bank bills, and Bank of Queensland (A-) raised A$30 million for five years, priced at 105 bps over.  

In New Zealand, Rentenbank (AAA) tapped its April 2024 line in New Zealand, adding NZ$125 million. The increase priced at 77.9 bps over NZGBs, takes the total outstanding to NZ$525 million.

LGFA also tapped its December 2017, March 2019, April 2020 and April 2023 lines adding NZ$10 million, NZ$10 million, NZ$20 million and NZ$80 million, respectively.

And life returned to the structured finance sector, after no issuance in January.