Australia Set to Post New Record for Govt Bond Issuance in July

• Published on
• 14 Jul 2020, 02:31 PM

By Sophia Rodrigues

Australia is set to post a record month for debt issuance as the government seeks to capitalize on strong demand for its bonds and front-load the borrowing program ahead of the European summer and the U.S. elections.

The aim is to complete as much borrowing as possible in case markets turn volatile later in the year. While any such front-loading entails a cost to the borrower, it would be no worse than taking an insurance policy to guard against risk of investors shying away, should global markets become volatile later.

The big majority of issuance this month will come from two bond syndications, the 2025 bond and the 2051 bond.

On Tuesday, the Australian Office of Financial Management raised A$17 billion from the syndication of the new 0.25% 21 November 2025 bond. The issue was priced at a yield of 0.495% which works out as a spread of around 18.5bps on the implied bid yield for the primary three-year Treasury Bond futures contract.

The amount fell slightly short of the record A$19 billion raised in May from syndication of the December 2030 bond. The order book for this bond was a huge A$50.6 billion though it also fell slightly short of the record A$53.5 billion for the 2030 bond.

2051 SYNDICATION EAGERLY AWAITED

In the final week of July, the AOFM will syndicate the 2051 government bond which is aimed at extending the yield curve from the current longest March 2047 bond. The 2047 bond was first issued via syndication in October 2016 and raised A$7.6 billion, and there was another syndication a year later where A$2.1 billion was raised. This bond line is currently A$13.3 billion.

AOFM first announced on July 3 it will syndicate new 2051 bond by the end of September. However, the announcement led to sell-off in the 2047 bond as market made space for the upcoming issue, thus pushing AOFM to do the syndication earlier than previously planned.

In the investor update in June, AOFM mentioned investors were particularly interested in the timing of the issuance of the new 30-year bond, an indication there was already demand for the AAA-rated Australian government bonds.

AOFM has no firm expectation of how much it will raise from the 2051 bond but going by syndication of the 2047 bond, recent syndication outcomes and the strong demand for Australian bonds, it would not be unrealistic to expect an issuance of at least A$10 billion.

So far this month, the AOFM has raised A$8 billion via bond tenders and another A$150 million was raised on Tuesday and a further A$2 billion will be tendered later this week. The next two weeks may see further tenders of up to A$8 billion.

If we assume A$10 billion is raised via 2051 syndication, and further tenders of around A$6 billion, the total issuance for the month of July could total at least A$43 billion. This would beat the record issuance in May when the AOFM raised a total A$39.5 billion.

--Contact: sophia@centralbankintel.com