YieldReport has made several references in recent months to a trend in Australian bond markets by banks such as CBA, NAB, BoQ to raise funds by issuing FRNs instead of fixed rate bonds. Bank of Queensland’s (BoQ) latest fund raising exercise is consistent with this trend but it comes with a potential twist and their previous bond issues may provide a clue to current state of bond markets and demand/supply dynamics.
BoQ’s previous 5 year deal (excluding the tier 2 issue at the end of April) was back in late 2014 when it raised $550 million, comprising a floating rate component worth $125 million and a fixed component worth $425 million. An analysis of BoQ’s fund raising in recent years indicates issuing bonds via both a fixed and floating structure has been BOQ’s preference method.
The latest raising by BoQ was an issue of $650 million of 5 year FRNS at 3m BBSW + 148bps. There was no fixed component this time and YieldReport understands that this was canvassed amongst investors but ultimately withdrawn. There may a number of reasons why the fixed component was canned but in a world of (really) low interest rates, perhaps it is a case of borrowers being keen to lock in low long-term funding but lenders less so.