What price for seven- to ten-year debt?

The remaining issuance activity last week took place offshore. Westpac issued €1.75 billion of seven-year bonds in the Euromarket, priced at 118 basis points over mid-swaps. This issue took place while the AFR was reporting that the major banks would like to issue longer-term (seven to ten years) bonds in the domestic market but there is little investor interest.

This tends to be a chicken and egg situation with most investors reluctant to move too far away from index benchmarks. With the duration of the benchmark index being somewhat shorter than that of a seven- or ten-year bond, investors will be reluctant to buy. But if the bonds are issued, then index duration will lengthen and investor demand will increase.

However, another issue is pricing and this has to be right. The AFR put pricing on a ten-year bond at around 110-120 bps over swap/bank bills, at the present time. A seven-year Euro-Australian dollar basis swap of around 35 bps, would have taken the Australian dollar cost of Westpac's issue last week to, let's say, 150 bps. Leaving aside the possibility that local investors may be filling up on their exposure to the big four, if the bank offered equivalent pricing here, investors would be lining up.