Australian issuance consolidates volume records

One of the main drivers was corporate issuance, which continued to rebound after a dismal outcome in 2022. The A$11.7 billion that priced in full-year 2023 almost doubled the 2022 total, but was itself eclipsed by the A$13.3 billion that came to market in the first six months of the current year (see chart 2). The first half of 2024 was, in fact, the busiest ever period for corporate issuance in Australian dollars.

To what extent this level of deal flow will be maintained in the second half remains to be seen. Market sources say new issuance may have been frontloaded ahead of an anticipated volatile H2, but with just A$7.2 billion of new supply needed in the second half a record corporate year is on the cards. On the other hand, the Australian dollar corporate market has a habit of losing momentum as quickly as it builds. The previous busiest six-month issuance period – H2 2017, when A$12.6 billion came to market – was followed by a supply slump: just A$4 billion of new corporate deal flow priced in H1 2018 and just A$9.6 billion in 2018 as a whole.

On the other hand, deal books in H1 2024 speak to wider and deeper demand for corporate credit. The availability of 10-year tenor also hints at a more robust market. The near-term constraint is likely to be on the supply side, specifically whether local corporate borrowers have satisfied their funding needs for the time being – and indeed whether they have already taken care of their requirements for the coming period.

The corporate sector was not the only one to experience record new issuance in H1 2024. However, the SSA Kangaroo market was more a case of consolidating gains than taking another step change, even though H1 2024 set another volume record – the A$30 billion of new supply inching past the A$28.2 billion priced in H1 2023 (see chart 3).

The pattern of SSA deal flow has shifted to some extent, most notably in the volume of bonds coming from Canadian issuers. Nearly A$10 billion of Canadian-origin supply priced in the Kangaroo market in H1 2024, including more than A$5 billion in four benchmark deals from provincial issuers (see Kangaroo market’s destination Canada). The previous record for a full year was A$5.7 billion, set last year, with no other 12-month period surpassing A$2.7 billion of aggregate Canadian sub-sovereign Kangaroo supply.

Total financial institution supply fell just the other side of the first half record, as A$58.6 billion came to market in January-June 2024 compared with A$60 billion last year (see chart 4). The composition of the market was also very similar to 2023, though with a marginal reweighting toward the domestic big-four banks and away from other domestic issuers (see chart 5).

In an indication that issuance volume is likely to be as least as much a product of supply-side considerations as demand being capped out, tranche sizes have grown across the main nongovernment sectors (see chart 6).

In particular, the average size of SSA Kangaroo tranches has tripled since 2019 – which also reflects a change in issuance patterns from a reliance on long-dated taps to more mid-curve benchmark supply. There may also be an element of seasonality at play, as the early part of the year is traditionally when SSA borrowers complete most of their benchmark issuance and supply of new lines into the Australian dollar market.

Meanwhile, corporate tranches grew to an average of A$379 million in H1 2024 from just A$263 million in 2019 – though the upswing in this sector has not been linear. Average corporate tranche volume over the past six years actually bottomed out in 2022, at A$239 million, before starting to climb again the following year.

The Australian domestic semi-government market also continues to produce a healthy volume of syndicated supply. A total of A$30.5 billion came to market in H1 2024 (see chart 7), on track for an annual record though, again, with a suggestion that state governments may have pre-funded to ensure they are well positioned should the second half prove harder going for new issuance.

Even so, it is hard to envisage the semi-government market not producing a record year for new syndicated issuance: there only needs to be A$13.9 billion of new volume in H2 to pass the previous record, of A$43.9 billion set in 2020. With substantial funding tasks remaining the order of the day for most Australian states, there should be plenty of supply.

The sovereign sector helped first-half sustainability-labelled issuance to a record in 2024, at A$28 billion (see chart 8). This includes the A$7 billion debut of the Australian Office of Financial Management in the green-bond market but minimal supply in the credit sector: there was just a single corporate green-bond transaction in the first half and nothing at all from financial institution issuers. While credit issuers have always been a marginal contributor to total sustainability-labelled issuance in Australia, H1 2024 represents a further concentration of new issuance in the high-grade universe.

Outside the vanilla bond space, the Australian dollar securitisation market continued to go from strength to strength in H1 2024. The A$44.1 billion priced nearly doubled the previous H1 record – set the preceding year – and is well on the way to passing the full-year record of A$58.3 billion, also from 2023 (see chart 9).

Again, there is growing market talk about securitisation supply potentially having been front-loaded – though in this case it would take a spectacular reversal of supply trends for full-year issuance to fall short of a record. Nonbank lenders are typically reporting improved loan origination conditions in 2024, so there should be a natural flow of new collateral into the securitisation funding market.

It is not just nonbanks that have been driving securitisation issuance. Indeed, one reason for the marginal fall in non-big-four bank bond supply may be the equivalent rebound in bank securitisation – especially from smaller and regional banks. While nonbanks continue to dominate supply overall, their share fell to less than 60 per cent of the total in H1 2024 from more than 80 per cent at peak, in 2022 (see chart 10).

At the same time, collateral diversity continues to be a feature of Australian dollar securitisation – perhaps best exemplified by auto and equipment deal flow. The A$10.6 billion of auto and equipment asset-backed securities priced in 2023 – all by nonbank lenders – was comfortably a record for the sector. But, with A$7.2 billion already in the books in H1 and just A$3.4 billion of further supply needed for a new record, the current year should be another high-water mark even if supply slows in the second half (see chart 11).

The new-issuance story is less dynamic in New Zealand. First-half supply of NZ$17.1 billion (US$10.4 billion) is roughly in line with trend levels from the past five years. But the total belies a record contribution made by the sovereign, at NZ$12 billion (see chart 12). New Zealand Debt Management has an ongoing elevated new-issuance task of nearly five times its pre-pandemic norm, which means the local market is having to adapt to new supply patterns at the same time as the domestic buy side is consolidating and taking on a different form.

The NZ$5.1 billion of nonsovereign new issuance in New Zealand in H1 2024 is the lowest level since 2017 – a year that ended up as the weakest for supply in the New Zealand market since 2010. Every sector experienced a fall in year-on-year deal flow, though the financial institution and SSA markets were particularly quiet in H1 (see chart 13).

The NZ$600 million of new SSA Kauri flow is barely one-ninth of total supply from last year – itself the quietest Kauri year since 2019 – while banks have issued just NZ$1 billion, a supply drought not seen since pandemic funding measures were in place.

New Zealand securitisation supply was relatively healthy in H1 2024, with just less than NZ$1 billion coming to market – a record for the first six months of the year, though in a sector where H2 deal flow has typically provided the bulk of annual volume (see chart 14).