Thursday 11 July 2013 by FIIG Research Legacy

Bond issuance update - 1H13

Please note that the figures mentioned in this article are no longer available.

The supply in the bond market can be characterised as robust over 1H13, with 1Q13 contributing the most to volumes

According to Bloomberg data, a total of $76.82bn was issued domestically year to date, far in excess of the $64bn issued in the first three quarters of 2012, mostly due to significant government issuance. However, the Australian credit bond market (excluding government guaranteed) recorded its lowest first half year issuance since 2009, with $20.8bn issued compared to $37bn in 1H12. Issuance by month varied with the largest volume recorded over January and March when the credit spreads (Australian iTraxx index) were lowest, as depicted by the red line (see Figure 1). While credit spreads widened dramatically over the last two weeks of 1H13 from 119bps to 149bps, June recorded the lowest issuance of $3.36bn for the first half of the year.

One of the main reasons for the decline in domestic bond issuance is a substantial reduction in deal flow from the four major banks. The majors priced A$18.6bn of domestic bonds in 1H12, compared to A$9.9bn in 1H13. Some of the slack was partly due to the nil issuance of covered bonds (usually considered a cheap source of funding for domestic banks) in 1H13 as opposed to $9.6bn in 1H12, when they were first issued in the Australian market.

Decline in retail bond issuance is another reason for the domestic bond issuance reduction compared to the same period in 2012. A total of six retail bonds worth $5.3bn were issued in the 1H13 as opposed to 10 bonds totalling more than $6.3bn in 1H12.

While the domestic credit issuance was somewhat weak, the Kangaroo market (a type of foreign bond denominated in Australian currency and issued in the Australian market by non-Australian companies) also failed to reach records set in 2010 and 2011, recording $13.8bn in 1H13, that is $2.8bn more than the 1H12 figure but $6.2bn less compared to 2010 and 2011. Fragile global markets and continued uncertainty in stagnant European countries kept Australian domestic investor participation and issuance subdued. The largest deal of the year was recorded by KfW Bankengruppe, a $1bn issue. Deutche Bank was the leading book runner, raising $2.28bn for 22 deals. TD Securities, J.P. Morgan and ANZ followed the lead with $1.94bn; $1.73bn and $1.54bn in volume issued respectively (see Figure 2).

On the domestic front, 221 vanilla bonds were executed in 1H13 totalling to $48.8bn as opposed to $92.9bn issued in 1H12. Westpac Institutional bank was lead arranger for domestic issuance which included: credit, all Kangaroo, and syndicated sovereign and semi-government issuance. ANZ and Commonwealth Bank followed with 35 and 22 deals worth $7.73bn and $6.51bn respectively. UBS Investment Bank, Deutche Bank, Citi, TD Securities, J.P. Morgan and RBC Capital markets were in the top 10 domestic vanilla book runners (see Figure 3).

Activity in the RMBS market remained strong year to date. Overall, 1H13 had $7.86bn (Australian tranches only) compared to $4bn in the same period of 2012. The biggest issuers in June 2013 were CUA (HARVE 2013-1) with $0.68bn, Bendigo and Adelaide Bank (TORR 2013-2) and Firstmac (FMACB 2013-1E) with $0.5bn respectively. Other names included: Liberty Financial and Flexi Group.

Over the past week there were two new issues. Westpac issued a three year deal, while ANZ launched a new hybrid transaction. For full details please see “New issues” in the Wire.