INTERVIEW: After Record Australia Bond Syndications, What Next?

(This exclusive interview was first publishedd on April 22 as an email to premium subscribers. It's now being made freely available to all)

By Sophia Rodrigues

(Sydney, April 22, 2021) -- This time last year when financial markets were still recovering from the initial shock of the Covid-19 pandemic, Australia launched syndication of a new bond line after a gap of nearly 21 months.

The November 2024 bond attracted orderbook of A$25.8 billion at the clearing price, an amount that surpassed all expectations given the timing of the issue.

Rob Nicholl, the Chief Executive Officer of the Australian Office of Financial Management recalls that experience in an exclusive interview with CB-Intel.

“Given that A$25.8 billion was the biggest book we had had to that point, I think we would have been very pleased with that at the time, especially because this syndication was launched when the market was recovering – not after it had recovered.”


Little did Nicholl know that in just a month that “pleasing” record would be broken with an orderbook double the size. By the time, the AOFM syndicated a bond in September, the orderbook for the most recent issue then had attracted a record A$66.1 billion which was 2.5 times the orderbook of November 2024.

The 12-month period to April has been a year of records and likely the busiest year for Nicholl since he took over as the head of AOFM in January 2011. There was record government borrowing, record bond issuance, record syndications and record orderbooks.

Unless there is another deep downturn of the scale of the Covid-19 pandemic, these records are here to stay.

Last week was the final syndication during this 12-month period which saw a record issuance of A$130 billion from syndication, and total bond issuance of A$272 billion.

View this in the context of just A$100 billion the AOFM raised from October 2011 – when the first Australian government bond syndication deal was done – to April last year, to appreciate how huge A$130 billion is.

One would have expected Nicholl to heave a sigh of relief following the completion of this latest syndication.

But the answer is an emphatic, “No.”

“It was a busy period no doubt, but we were very energized. We learnt a lot,” he said.

The enthusiasm likely stemmed from strong outcomes at all the syndications. The orderbook-to-issue ratio was two times at the first syndication and it was the lowest. The rest of the syndications saw the range from 2.5 times to 3.4 times, with the highest was at the last syndication.

Such strong response meant the AOFM was in control at all syndications, and could decide the issue size, and the bids to reject. In short, Nicholl was always in a position where he had a say on “quality” of investors of Australian bonds.


By nature, Nicholl appears to be a calm person and always keeps his cards close to his chest. The best example was the last syndication where he kept market guessing about the launch announcement week after week. At one stage, market almost gave up hope after two banks suggested the AOFM will not go ahead with the planned syndication.

And then it did.

It was the first bond line launched via syndication since the Reserve Bank of Australia began its A$100 billion bond purchase program in November and in February announced it will follow it up with another A$100 billion program once the first ends in April.

But neither the RBA’s QE nor the narrowing in yield between the US and Australia affected demand for the new November 2032 bond.

“That was a tidy outcome and a good one to have behind us,” Nicholl says, summing up his initial thoughts when the syndication was completed.

By completing the deal, Nicholl ensured he remained true to the guidance issued in January. And equally importantly, for the AOFM it was one less estimate to deal with.

“We won’t have to try and estimate a volume for it to include in a revised issuance program at Budget -- if a revision is warranted,” he said.

The federal budget is due on May 11 and there is an expectation of a downward revision in the issuance program for this year and the forward period, following better-than-expected budget outcomes this year that might have implications for future too.


One important takeaway of the recent syndication was the amount that was allocated to foreign investors – the issue size was A$14 billion versus orderbook of A$48 billion at the clearing price. When the RBA launched QE, there was concern that foreign investors would shy away from Australian bonds if yields were no longer as attractive.

When asked if the latest syndication allayed that concern, Nicholl just pointed to factual evidence.  “The last syndication had an allocation of 55% to offshore investors.  That is high for a new bond of that tenor,” he said.

Deciding on the final issue size and the investor composition is key part of AOFM’s job at a syndication. Central banks get their 100% allocation, and so do bank balance sheets and fund managers.

It is mainly the hedge funds and bank trading accounts that are carefully checked.

While they are not all treated as speculative bidders, Nicholl said the AOFM does put their bids together to arrive at how much of the total deal to allocate to that category. As an example, the November 2032 syndication had 35% of the total allocated to trading accounts and hedge funds, and the remaining 65% was allocated to what the AOFM calls “real money.”


Prior to last year, the AOFM had used syndications selectively but it has an established and well-understood approach to using them.

This experience was applied last year and according to Nicholl “it served us extremely well.”

Does this mean there will be more syndications in future?

“They can be a highly effective approach to primary issuance if used in the right circumstances and are well managed,” he said.

And like the past year, syndications are likely to be used for new bond lines. The option to do tap syndications remain but the AOFM is unlikely to commit to it.

In the past, AOFM has used tap syndications for ultra-long end bonds (over 20 years) but the “development phase” for that part of the curve is now over, so tenders will be the preferred option.

Much will therefore depend on the number of new lines the AOFM plans to introduce next year, and which depends on the borrowing program.

In the last 12 months, nearly 50% of the total bond issuance of A$272 billion was done via syndications. CB-Intel estimates the total bond issuance in the next fiscal year (July 2021 to June 2022) to be in the A$120 billion to A$140 billion range. If correct, that might leave scope for around A$65 billion in syndication.

Whatever it is, there is no denying syndication will be on the table because of the indirect benefit it brings.

Syndication improves bidding at regular tenders because banks want to win mandate for joint lead manager (JLM) roles. This was not evident at tenders in the past year because of overall good demand but it might be useful in future.

“There was fairly consistent good bidding from a wide range of intermediaries throughout last year, so I think that was also a reflection of the flows all intermediaries were seeing generally in terms of demand for AGS,” Nicholl said.

The motivation to win JLM mandate ensures banks are aggressive in their bidding at tenders, and because of their presence, the other intermediaries also bid aggressively to have their bids cleared.

The AOFM knows this and will use it to its advantage.