SYDNEY Feb 23 Australia sold a record A$11
billion ($8.45 billion) of debt this week thanks to insatiable
demand from local banks, calming market worries about the impact
that losing its coveted triple-A rating could have on
The new November 2028 bond issue received a whopping A$21
billion in bids at the clearing margin of 14 basis points over
10-year bond futures.
That allowed the government to pay a spread at the lower end
of the 13.5 basis points to 16.5-basis points marketing range.
"We thought of a standard A$5 billion to A$7 billion, maybe
A$8 billion issue size," said Ian Clunies-Ross, head of investor
relations at the Australian Office of Financial Management
(AOFM), the government's funding agency.
"So we were very pleasantly surprised with the level of
While Australia's bond offers are regularly oversubscribed,
the scale of demand for the latest issue suggests investors are
unfazed by the prospect of a sovereign ratings downgrade.
Last year, S&P Global Ratings warned that Australia could
lose its coveted triple-A credit rating if the government
couldn't put its fiscal house in order by May, when the annual
budget is presented.
The vast majority, or 85 percent, of the issue was sold
domestically, AOFM data showed, with some investors surprised by
the light participation of investors outside Australia.
"Offshore allocation dropped to 15 percent, the lowest ever
for an AOFM syndication," Westpac said in a note.
International investors took 30 percent of a sale of 2021
bonds last month, and 65 percent of a 30-year issue completed in
"Offshore investors participate much more keenly when we
extend our yield curve like a 15-, 20- or 30-year bond," said
the AOFM's Clunies-Ross.
Among the domestic buyers, 35 percent of the issue went to
banks' balance sheets, 25 percent to banks' trading books, 29
percent to fund managers, 5 percent to hedge funds and another 5
percent to central banks.
Local banks are large holders of Australia' sovereign bonds
because there is a shortage of liquid securities that they must
hold to help weather any potential funding crises.
Also whetting demand for the issue was an attractive spread
over existing debt.
"It was fairly priced with a premium of one to
one-and-a-half basis points," said Scott Rissman, director,
liability-driven and overlay solutions at QIC, one of
Australia's largest fund managers with A$32 billion in cash and
The AOFM's Clunies-Ross said real money investors received
their entire allocation, in contrast to hedge funds and banks'
trading books which were aggressively scaled back.
The bonds, rated triple A by the three major ratings
agencies, will pay a coupon of 2.75 percent and mature on
November 21 2028.
ANZ, Commonwealth Bank of Australia, Deutsche Bank and
Westpac Institutional Bank jointly led the issue which will
settle on March 2.
($1 = 1.3011 Australian dollars)
(Reporting by Cecile Lefort; Editing by Eric Meijer)