Analysis: Australia’s New 2024 Syndicated Issue Could Make New Record

• Published on
• 14 Apr 2020, 01:34 PM

By Sophia Rodrigues

Faced with a huge borrowing task in the months ahead, the Australian Office of Financial Management is pursuing a clever bond-issuance strategy this week by opting for a medium-term bond using syndicated option.

By doing this amid continued support of the Reserve Bank’s bond-buying in the secondary market and the liquidity created in the market from the purchases done so far, the AOFM is hoping to achieve record issuance and create positive environment for future sales.

AOFM has set a syndication fee of A$0.09 per A$100 face value of bond issued.

NEW NOVEMBER 2024 BOND

The AOFM is issuing a new 0.25% November 2024 bond of a benchmark size via syndication.  Initial price guidance is a spread of 16bps to 20bps over the implied bid yield for the primary three-year Treasury bond futures contract. With three-year bond futures at 0.27% this morning, the yield on the new bond is expected to be in the range of 0.43% to 0.47%.

ANZ, Deutsche Bank, UBS AG - Australia Branch and Westpac Institutional Bank are the joint lead managers. AOFM expects the issue to be priced on Wednesday.

The term of this bond is 4 years 7 months which is the shortest bond term the AOFM is issuing by syndication to date. The closest to this was the December 2021 bond syndicated in January 2017.

The record amount raised by syndication is A$11 billion when the November 2028 bond was issued in February 2027.

The RBA has so far done bond purchases totalling A$41.5 billion from the secondary market, including A$7.0 billion of semis. Around A$12 billion of the Australian government bond purchases have been for maturity up to 2024, with an additional A$1.5 billion expected to take place Tuesday with RBA buying of May 2021 to April 2023 bonds.

HOPE FOR NEW RECORD

There is an expectation the AOFM could break the previous issue record of A$11 billion at this syndication, with a big chunk of demand expected to come from those who sold bonds at the RBA’s bond-buying auctions.

Demand is also expected to be strong because of the presence of the RBA in the secondary market. The RBA has indicated there will be smaller and less frequent purchases of government bonds if conditions continue to improve in the market. So far, it has tapered the size of bond-buying but purchases continue to be on a daily basis.

Strong demand at this syndication is expected to boost investor sentiment towards Australian bonds. Such an outcome would give the AOFM confidence to issue long-dated bonds in future via tender or syndication.

A strong demand would also give AOFM some breathing space to mull strategy for future sales. On April 3, the AOFM said it expects to issue A$5 billion of government bonds most weeks. Analysts at ANZ expect issuance of around A$60 billion over 12 weeks.

--Contact: sophia@centralbankintel.com