For a short time early in the year there was a trend for semi-government issuers to favour floating rate notes. However, a new trend seems to be emerging. State borrowers are now issuing fixed rate bonds again but maturities appear to be lengthening.
Tascorp began with a new 2046 bond issued in April, followed up with a $450 million tap in May. Now WATC has raised $700 million via a new benchmark with an October 2027 maturity. It is possible a sample size of two is not exactly convincing evidence of a trend but it would make sense for issuers to lock in funding for lengthy periods if they think rates are unlikely to average less over the life of the bond than what they are now. The yield to maturity on the WATC bonds was 3.005% and if the RBA succeeds in raising the inflation rate the real (after inflation) cost per annum will be very little.
There’s no shortage of demand for these bonds either, even if interest rates are historically low. The joint lead managers to the issue, Commonwealth, ANZ and UBS, reported orders of around $1.2 billion by the time the price was set. While some of us may look at the interest rate and wonder why investors would bother, there are more than a few experienced bond fund managers who believe there is money to be made from further falls in yields and what is referred to as “roll” or the natural fall in yields as time passes and the bond gets closer to its maturity date.