In the second week of November, ANZ sold a USD$3.25 billion, four tranche deal into the US market (see our commentary on this) and this week Westpac has headed down a similar path, launching a three tranche, USD$3.75 billion fixed and floating rate issue. Of the three tranches, the two which are fixed make up nearly three quarters of the funds to be raised. Australian banks may be voting with their feet as the odds of rates rising in the US shorten. Given the relationship between the Federal Funds Rate and US yields, rises in the Federal Funds Rate will typically lead to higher long end yields. The next few weeks may be one of the few opportunities left to lock in low yields while there is still some uncertainty left in the lead up to the first rate rise.
Banks may also be looking to lock in funding while markets are liquid and demand is present. If the US Fed raises interest rates in December – currently forecast by markets to be around a 70% chance – there is potential for dislocation in markets as it is such a key interest rate globally. Despite the Fed telegraphing its intentions to raise interest rates for many months, it is still possible for markets to be taken by surprise and by locking in rates now, it avoids unforeseen problems trying to raise money in Q1 2016.