(Bloomberg) -- Sales of Australian dollar bonds so far this year have already hit an annual record, as companies took advantage of rising demand from Asian investors to sell more debt.
Issuance by corporate borrowers and local governments topped A$258 billion ($172 billion) this week, according to Bloomberg-compiled data. That surpasses the previous full-year record of about A$253 billion in 2023.
Demand from Asia-based investors, who are looking further afield as Chinese companies cut back on debt, is helping to spur the sales spike. The Reserve Bank of Australia’s interest rate hikes have trailed those of the Federal Reserve, engendering lower coupons that enticed foreign issuers. That’s created a virtuous supply-demand cycle as Australian pension funds also look for opportunities in credit.
“Because of increased local and regional investor appetite, borrowers are now able to issue in the Aussie dollar in longer tenors, with bigger sizes and to a more diversified investor base,” said Owen Gallimore, APAC head of credit analysis at Deutsche Bank AG. “The Asian share of Aussie deals used to be small, but it’s growing and growing.”
Asia-based investors account for about 30% to 40% of demand for some notes, and the trend is expected to continue, he said.
Orders from Asia for Qantas Airways Ltd.’s debt accounted for about 38% of total demand earlier this week. A bond issued by Singapore’s Oversea-Chinese Banking Corp. in August saw 74% of demand coming from Asia, data compiled by Bloomberg shows.
In recent weeks, some notes from Macquarie Bank Ltd. and Transurban Queensland Finance Pty also received bids from Asia in excess of 30% of total demand.
The possibility of profiting from spreads is also drawing investors. With less liquidity in the local market, Aussie-dollar notes carry higher average spreads than similarly rated US-dollar debt.
Yield premiums of the Australian-dollar notes, which have an average rating of A+, are at about 97 basis points as of Sept. 11, a Bloomberg index shows. Similarly rated US-dollar credits’ spreads are at about 84 basis points, another Bloomberg index shows.
With the Fed likely kicking off its rate-cutting cycle next week, the differences in benchmark interest rates may affect the pace of issuance. Australia’s central bank has raised interest rates to a 12-year-high of 4.35% to try to gain control over inflation, and RBA Governor Michele Bullock has warned it is “premature” to be thinking about rate cuts.
The US election in November also could be a factor in a possible slowdown in the volume, said Mark Reade, head of credit strategy at Mizuho Securities Asia. But that could just be a blip.
“While future issuance volumes will no doubt remain volatile, we do believe the Australian dollar credit market will remain structurally larger than in the past,” Reade said.
--With assistance from Sharon Klyne.
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