Westpac completes a relatively strong two months of issuance
Westpac completed the month of February in the domestic corporate bond market with its first government guaranteed bond issue raising a total of $1.925 billion for five years. The two tranche deal was priced at 70 basis points over swap/bank bills and split - $975 million fixed and $950 million floating.The issue takes total issuance in the domestic market for the first two months of the year to $14.8 billion, which is line with the same period last year. But the key difference is that in the first two months of 2008 supranational and agency issuers accounted for 33 per cent of the total. This year the issuance has come solely from Australian banks or the local operations of international banks.The issuance from the banks this year has also been in big licks. Average issuance size has increased by more than 50 per cent over that seen in 2008, to $616 million. Also, the pricing on government guaranteed bank bond issues has improved since the start of the year. In December a five-year issue from one of the four major banks was attracting a credit spread of 120 bps. This narrowed to 110 bps in early January and fell to 70 bps by mid-February. That said, with the exception of triple A rated Rabobank, only $250 million has been raised since the start of the year without a government guarantee. That was a three-year issue by Commonwealth Bank priced at 130 bps over bank bills.As for other events last week in the domestic market, Westpac announced that it had increased the size of its hybrid security issue, launched the week before, to $700 million from $500 million and set the margin at 380 bps over the five year swap rate.This proves that there is significant demand in the market, and particularly among less margin-sensitive retail investors, for fixed interest type securities.ANZ is expected to be the next to launch a hybrid security issue but it may find that Westpac has seized a first mover advantage.Among corporate bond issuers the only activity of the week was in the New Zealand domestic market. Contact Energy, a subsidiary of AGL Energy, announced a NZ$300 million retail bond issue, to open today. Contact Energy said it would accept oversubscriptions for the issue but provided no other details.