News

An improving budgetary position in New Zealand – including a reaffirmed projection of a return to surplus in 2014/15, ahead of Australia's latest projections – allowed the New Zealand Debt Management Office (NZDMO) to lower its funding requirement for the next two financial years. Analysts suggest the NZDMO's funding strategy could significantly reduce nominal tender supply in the coming year.

Analyst and rating agency response to Australia's federal budget is broadly supportive given the context of significantly weaker revenues and the consequent prolonged period of deficit. However, some economists believe little has been done to address structural weaknesses, especially on the revenue side, which further reduce the chances of a balanced budget position on average across the economic cycle.

Half-year results published by National Australia Bank (NAB) on May 9 further illustrate the rapid tightening of wholesale funding margins in recent months. However, outstanding debt issued in a higher spread environment means the NAB's average term funding cost across the portfolio has only recently stopped rising and will not fall significantly unless the current issuance environment is maintained or further improves.

A projected return to surplus for the state government of Victoria in the 2015/16 financial year will see the funding requirement of Treasury Corporation of Victoria (TCV) fall below A$2 billion (US$2.04 billion), the corporation revealed on May 8. Analysts, ratings agencies and traders responded broadly positively to the May 7 Victorian state budget, especially the government's commitment to ongoing cost savings despite declining revenues and a challenging political position.

Analyst responses to the May 7 rate cut by the Reserve Bank of Australia (RBA) largely coalesce around the view that the 25 basis point cut was a marginal call based on benign inflation conditions, with weaker employment data also contributing. Commentary points out the RBA's language in explaining the cut did not vary significantly from that outlining recent decisions to hold, supporting existing views on reserve bank tone.

On May 6 the Australian Prudential Regulation Authority (APRA) released a second consultation paper covering Australia's Basel III liquidity reforms, revealing it does not plan to follow the lead of the Basel Committee on Banking Supervision (BCBS) by easing the requirements on banks – or the timeline for their implementation.

The announcement in early April of a massive programme of quantitative easing by the Bank of Japan (BoJ) is expected to suppress local bond yields even further and consequently force Japanese funds into international investments. But Japanese market watchers say that move has yet to begin, and the falling yen continues to cause repatriation of assets.

With a third of the year over ANZ has so far maintained its recent record as the leading intermediary in the Australian and New Zealand bond markets. According to KangaNews's league tables, ANZ lead managed more deal volume in 2013 to the end of April than any other bank when issuance from domestic and international borrowers is taken into account.

Half year results released by ANZ Banking Group (ANZ) on April 30 show an increasing gap between the bank's cost of deposit funding and wholesale margins, with the bank paying around 50 basis points more for deposits than for three-year wholesale debt by the end of March this year. Overall, ANZ's funding mix remained largely stable compared with six months previously.

The entry of New Zealand government bonds (NZGBs) to the Citi World Government Bond Index (WGBI) – which analysts believe would significantly increase the market's profile with global investors – is a somewhat more distant prospect that recent reports suggest. A substantial quantity of NZGBs is held by official institutions in New Zealand, removing them from outstanding volumes for index purposes and thus keeping the market below the inclusion threshold.

Market participants are divided over whether demand and supply dynamics in the Australian nonconforming residential mortgage-backed securities (RMBS) market will continue to allow deal prints at the same frequency as they have emerged in recent weeks. Two new nonconforming deals have priced in April following the reopening of the market in March, and recent demand for the product has been robust.

KangaNews data show the first full quarter of 2013 producing differing issuance outcomes across sectors in Australia and New Zealand, as some hit record levels while others failed to match 2012 deal flow. In both markets, domestic bond issuance as a whole was down on the previous year's levels, with compensation coming in the form of Australia's relatively vibrant corporate and securitisation markets, and a Kauri renaissance in New Zealand.