It seems as if spreads were tighter in all segments of the bond market this week, including the corporate sector. Given Commonwealth bond yields rose across the curve as global markets went into “risk on” mode, the driver behind the tightening of corporate spreads is more likely to be lag in corporate yields following their Commonwealth counterparts than something of a fundamental nature. However, the series 25 iTraxx plummeted from 125.6 to 109.9 this week, which indicates two things. Firstly and most obviously, the market thinks that corporate default risk is less of an issue than it was before. The second thing relates to the size and speed of the change. Such a move suggests the factors which moved the index to its previous level have faded from view quickly. There was talk of some investors who thought credit spreads would widen after the Brexit as forecasts of lower growth and risks to corporate profits grew. This was especially so among the miners but once a ‘kind of’ calm returned to markets and other risk indicators such as share prices that showed strength, a fall in CDS prices is understandable. The swiftness of the move though perhaps reflects market positioning and the lack of liquidity in trying to exit positions.
Bond issuance was light this week despite the greater number of issuers in the market. Not including the Kangaroo market, bond issuance for the week came to just over $4 billion, whereas in the previous week, over $11 billion of bonds were issued locally or by Australian issuers. The main difference was the lack of jumbo-sized bond sales from the major banks, although ANZ followed in the other banks’ footsteps with a USD$1.5 billion (AUD$2 billion) sale comprising USD$1 billion worth of 2019 bonds and USD$500 million of 2021 bonds. It also sold some July 2026 bonds at Swap + 125bps into the local market but that was for only $100 million.
Another notable transaction was by Victoria Power Networks Finance, which is half-owned by Spark Infrastructure. There were four tranches, worth a collective $660 million, with two of the tranches in USD. The bulk of the funds raised were in the two USD tranches, with the larger tranche of October 2026s worth USD$275 million ($AUD362 million) while the tranche of October 2028s was worth USD$125 million ($164 million). The AUD tranche tranches comprised $30 million worth of October 2026s and $100 million October 2031s.
Another feature of the week was the issuance of bonds out of the local offices of offshore corporates. Sumitomo Mitsui Bank (Sydney) issued $500 million 2019 bonds at 3m BBSW + 117bps, Toyota Finance (Australia) issued two tranches of 2020 bonds comprising a $393.1 million tranche and a NZD31.5 million (AUD$29 million) tranche and Rabobank (Australia) issued $50 million 2026s at Swap + 135bps.
There were also a few other transactions, including Transurban’s Norwegian bond issue and ME Bank’s issue of $225 million 2019 FRNs. All these and other bond issues can be found in our tables via the link below.
In the Kangaroo market this week we saw some slightly out-of-the-ordinary transactions. The first was an issue of bonds by Mizuho. Mizuho often arranges transactions for others in this segment of the bond market but this time it issued $190 million July 2021s bonds on its own behalf. North Rhine-Westphalia Bank returned to the Australian market after a decade’s absence. In 2006 it issued $300 million of 5 year bonds but on this occasion it sold a relatively-modest $50 million January 2027s at ACGB + 78.75bps. The last was an issue of $325 million tier 2 bonds by Societe Generale. These bonds are a little different as they are fixed for the first seven years at 500bps and then they pay Swap + 310bps until 2028.
Auckland Council tapped its March 2026 series for $30 million at ACGB + 83.75bps, more than the 78.25bps it paid in May and a smidgen more than the amount paid in June. Regular issuer Province of Quebec sold $75 million May 2026s at ACGB + 79.75bps, 2.75bps less than a similar transaction at the end of June.
All these and other bond issues can be found via the link below.
AUS CORPORATE BONDS
|ISSUER||MATURITY||COUPON (%)||RATING||WEEK |
|Δ WEEK||Δ MONTH|
|Wells Fargo & Co.||27-Aug-24||4.75||A+||3.42||3.33||3.40||0.07||-0.13|