This view was confirmed by the demand that came through for the deal. The book grew to more than A$7.6 billion including notably robust contributions from the real-money sector (see chart 2) and from Asia, with regional investors accounting for more than one-third of the largest tranche of the trade (see chart 3).

Source: ANZ 31 August 2023

Source: ANZ 1 September 2023

Source: ANZ 1 September 2023

* Includes domestic branch and offshore entity issuance.
Source: KangaNews 1 September 2023

In part, this reflects a market that is making up for a shortfall of supply in the short and medium term. July was as quiet a month for new issuance as August was busy (see chart 4). Meanwhile, supply is still replenishing the gradual erosion of outstandings from the pandemic era.

ANZ data, for instance, suggests major-bank domestic senior bonds on issue fell by more than A$40 billion during the period in which the term funding facility was active – and even the profusion of new supply in August only brings the level close to, but not yet at, parity with the pre-pandemic level.

But there is also a longer-term trend at play. “My sense is that making up for a supply shortfall is probably a secondary factor in the level of demand we are seeing,” Adam Gaydon, executive director and head of debt syndicate at ANZ in Sydney, tells KangaNews. “The orders in the deal book from fund managers, ETFs [exchange-traded funds] and from investors in Asia match the feedback we have received about inflows to fixed income based on higher yield.”

Nor does the recent deal flow mean demand has been sated. Gaydon points out that the volume of scaled bids in the ANZ book – more than A$2 billion – would be enough to comfortably cover most issuers’ likely expectations from the Australian dollar market, and he also believes transaction outcomes will be a filip for a wider range of issuance.

“By no stretch of the imagination has demand been exhausted. This deal outcome will only encourage other issuers – potentially including corporates and securitisers. Major-bank five-year issuance is a bellweather for the market as a whole: it has traditionally been a guide to where securitisation deals might price, for instance,” Gaydon comments.

ANZ itself is unlikely to test domestic demand again in the near future. It goes into pre-results blackout at the end of September and is comfortably funded ahead of that period. “We have been well ahead of our funding run rate and in fact we were largely done with our current-year need even before this trade,” Gifford reveals. “There is a bit of ‘tidying up’ of the current funding need but the main driver was to proactively access some pre-funding ahead of blackout.”

Demand conditions were clearly favourable but Gifford suggests the transaction outcome was also supported by an updated approach to execution. Following the approach taken by Commonwealth Bank of Australia (CBA) in its successful 10 August domestic deal, ANZ elected to announce its mandate a day ahead of pricing following a relatively soft CPI print on 30 August.

Gifford says this responds to investor feedback that an early announcement allows time to prepare for a new deal. The strategy supported early momentum in the book, which attracted A$3.4 billion of orders by the first update, at 10.30am.

CBA’s margin and secondary performance also made price discovery relatively straightforward. ANZ was not tempted to push harder on price despite the book momentum and Gifford says the issuer believes it “got the balance on pricing right”.

Gaydon adds: “The best possible result is a deal that performs on the break but does not gap in – which suggests the issuer could have priced tighter. Our trading desk has the new bond at 72.5 basis points on the bid for the three-year tranche and 91 basis points bid for the five-year – which is more or less ideal.”