The role of Australian dollars in global funding portfolios

At face value, a lower cash rate might be expected to reduce investor – and thus issuer – interest in Australian dollar bonds. Global bank funders beg to differ, saying they expect Australian dollar issuance to increase, if anything – with domestic investor participation a key goal.

ZAUNMAYR Has the declining Australian cash rate changed demand for the currency among international investors?

HALES The decline in the Australian dollar cash rate has not had a major impact on our issuance strategy as we have generally issued shorter-duration tenors in floating-rate format. We continue to see strong demand for our Australian dollar issuance.

KOBAYASHI We issued a TLAC [total loss-absorbing capacity] transaction in Australian dollars in October where cost was the most important aspect. This said, cost is important but so is developing a new investor base, so we will consider more Australian dollar TLAC issuance going forward.

We also have a local operation, MUFG Sydney Branch, which has a large Australian dollar balance sheet and needs Australian dollar funding. The Sydney branch has a good issuance history and has a large amount of outstanding Australian dollar bonds.

YAMADA The Australian dollar market also offers different windows of opportunity compared with other markets. In the northern hemisphere summer, the euro and US dollar markets are not as open but we can issue in Australian dollars during this period. This access period is potentially very important.

TANAKA The declining Australian cash rate has no significant impact on our customers’ businesses at this moment, so there is no major change in our demand for Australian dollars.

YEOH The Australian dollar acts as a regional currency, with banks holding Australian dollar balances in Singapore, Hong Kong and elsewhere. These pools are significant in scale, so we expect to continue to see good demand from Asia and Australia for Australian dollar transactions.

KAUFMANN We are still at the beginning of our journey in opening up Australian dollars for Commerzbank. We have done one tier-two transaction and this was mainly placed with investors in Asia.

We have seen in 2019 that the market has been pretty active for preferred and nonpreferred, and we want Commerzbank to tap into this demand as well. However, I can imagine Australian investors may have concerns regarding lower rates and lower yield, and it will be interesting to see how this influences their investment behaviour.

ZAUNMAYR There is some evidence that the domestic Australian bid has become more significant in Australian dollar deals from international banks, which until recently were quite focused on Asian demand. How does this match issuers’ experiences in Australian dollars, and to what extent is a domestic bid important to your participation in the Australian market?

KOBAYASHI This is very important. We had not issued an Australian dollar TLAC deal previously so it is hard to compare. However, we have issued a number of times in unsecured format from the Sydney branch and, in comparison to these deals, the domestic participation in the Australian dollar TLAC transaction was significant.
Domestic participation is very important in Australian dollar deals as it allows an issuer to access pools of liquidity domiciled in local currency which we would not see in other transactions.

This allows us to broaden investor participation across the issuance spectrum. We will continue to study the Australian dollar market and hope to continue to engage with Australian investors.

TANAKA When Mizuho issues Australian dollar denominated TLAC bonds and TCDs [transferable certificates of deposit], the domestic Australian bid is one of the most important features of demand. It is also very important for us to be able to expand Australian dollar funding capacity.

HALES The growing volume of Canadian bank issuance in the Australian dollar market means we have seen more domestic investors cover the sector. This tends to lead to higher participation.

YEOH Our last Australian dollar transaction was a covered bond, and this asset class is typically more broadly distributed. This was the case for us, with demand coming from Asia and Australia. Covered bonds tend to have more of an Asian-focused bid, driven by bank balance-sheet requirements from regulation.


In this environment, it is great if you can get long-dated funding. But you need to balance the timing of borrowing with when you need the cash as well as the associated costs.