ME Bank plans to include a US dollar tranche in a residential mortgage-backed securities (RMBS) transaction it expects to price next week. No Australian issuer has sold foreign currency-denominated securitisation product since the last euro tranches were included in a deal, in July 2008, while there has not been a US dollar offering since May 2007.
With issuance emerging across sectors in the past week, market participants in Australia say the deal pipeline is building. While confidence is only starting to return and investors say caution still reigns, the first domestic bank benchmark and the first public corporate deal since April are expected to be a sign of things to come rather than a flash in the pan.
KfW Bankengruppe (KfW) (AAA/Aaa/AAA) mandated an increase to its March 2017 Kangaroo bond on June 22 in what is likely to become the third Kangaroo deal to price in two weeks following over a month with no issuance. The new transaction, which is being lead-managed by Deutsche Bank and TD Securities, will add to a line which currently has A$1.2 billion (US$1.1 billion) outstanding.
The Australian Office of Financial Management (AOFM) has rebuffed suggestions that it should extend its programme of buying residential mortgage-backed securities (RMBS) from local issuers denominated in foreign currencies. And other securitisation market users also cast doubt on claims that offshore demand for Australian product could be kick-started by such a move from the government.
For much of the week, primary markets in Australia and New Zealand offered an eerie echo of the respective nations' performance in the World Cup so far. While a powerful European-based threat has been enough to cow Australia on and off the field, New Zealand refused to submit to the European menace and fought back with a major score of its own.
On June 17 Telstra Corporation (Telstra) (A/A2) reopened the domestic corporate bond market after almost two months since the last domestic corporate deal, with a A$150 million (US$129.4 million) 10-year deal priced at 200 basis points over 10-year mid-swaps.
European Investment Bank (AAA/Aaa/AAA) has mandated ANZ, J.P. Morgan and UBS Investment Bank to lead manage what will be the third Kangaroo transaction in the past week. EIB will increase its August 2019 Kangaroo line, which currently has A$2.6 billion (US$2.2 billion) outstanding, "in the near future subject to market conditions," the leads say.
A week after the state of Queensland released its budget for the 2010/11 financial year, Queensland Treasury Corporation (QTC) (AA+/Aa1) announced a small fall in its expected funding task for the coming 12 months. There is also room for further reduction in the A$18.1 billion (US$15.4 billion) indicative borrowing programme as the projection does not account for potential asset sales or pre-funding in the remainder of June.
The first Australasian covered bond, issued by Bank of New Zealand (BNZ) (AA/Aa2, with an issue rating of Aaa/AAA) on June 14, has been met with a positive response from the domestic investor base at which it was targeted. With some fund managers able to hold covered bonds outside their normal limits to unsecured bank paper there are also hopes the BNZ trade will soon be followed by more covered bonds in New Zealand.
There are indications that the Australian market is picking itself up off the canvas, with a small flow of primary market issuance, well-received budgets from the two biggest state borrowers and positive Chinese economic data all boosting confidence in the week to June 11. One semi-government, two supranational, sovereign and agency (SSA) Kangaroos and a big four bank have completed deals this week.
On June 9 European Investment Bank (EIB) (AAA/Aaa/AAA) announced that its funding volume target for this calendar year has been revised down to €70 billion (US$84 billion), from the previous projection of €80 billion. Eila Kreivi, head of funding for the Americas and Asia Pacific at EIB in Luxembourg, says the lower funding volume is a result of revised lending plans for EIB's clients this year and supports the supranational's contention that it will not be called upon to fund any sovereign bailouts.
On June 9 KfW Bankengruppe (KfW) (AAA/Aaa/AAA) was the first issuer to bring a Kangaroo deal in over five weeks when it priced a A$250 million (US$209.4 million) tap of its May 2015 bond. And although the funding cost of the latest Kangaroo deal ended up being on a par with the German agency's global funding level target, Klaus-Peter Eitel, vice president in capital markets at KfW in Frankfurt, highlights the difference between funding in the euro market and the US dollar and Australian dollar markets.