NICHOLL In my experience, domestic and offshore investors comment favourably on liquidity in the nominal market. This is not to say they don’t experience pockets of varying liquidity at times – or across the curve. For instance, the 20-year futures contract continues to be viewed as a work in progress. But even in ultra-long bonds, investors note an improvement in liquidity over what they may have experienced a year ago.

JONES The New Zealand Debt Management Office (NZDMO) has been concentrating its issuance into liquid buckets for a long time. The work we have undertaken over the last four years has all been with a view to building a domestic bond market with as much liquidity as possible given its size. This includes building out our curve and focusing on having liquid lines, syndicating new bonds to generate liquidity into these lines, having capacity to tender regular supply across the curve, extending the curve to meet both the Crown’s needs and investor preferences, and diversifying the investor base.

COLLINS Our approach to funding remains to ascertain what Western Australia’s borrowing clients require and match this as best we can according to market preference. Over the last four or five years we have restructured our balance sheet and reduced our short-term debt so we now have one benchmark bond line in each year, more or less. Our benchmark bond lines currently have, or are building towards, A$3.5-5.5 billion (US$2.6-4.1 billion) on issue. We think this gives the market sufficient liquidity to be able to trade our bonds successfully.

TRIGONA Most of the semi-government issuers have debt programmes which encompass large, liquid lines. For instance, New South Wales Treasury Corporation (TCorp) has 11 benchmark bonds, ranging in maturity from 2017 to 2030.

BUSH We have focused on benchmark lines for a long time and these form the vast majority of our funding requirement. We refer to deep fixed-rate lines as ‘benchmark’ lines, so this excludes some sizeable floating-rate note lines. These benchmark lines comprise roughly 75 per cent of our funding.

WHITFORD We also try to concentrate all our issues into domestic benchmark lines. We have one of these lines outstanding every couple of years, currently out to 2028, with some fledgling issues out into the 2030s. We try to focus our issuance into the benchmark lines to ensure there is plenty of opportunity for liquidity.

KENNEDY All the states have adopted the approach of having benchmark bond lines and some have programmes of sufficient size to be able to issue private placements alongside these. This is not a strategy South Australian Government Funding Agency (SAFA) has followed, given the relatively limited size of the state’s funding programme.

BUTCHER Liquidity is very important and should be one of the main focus areas for issuers, particularly as we move into a rising interest-rate environment. We collect data on secondary-market liquidity and turnover, and we monitor who is holding our bonds on a monthly basis.

COLLARD Being a relatively small issuer in both domestic and global markets, Export Finance and Insurance Corporation (Efic) unfortunately cannot issue into large, liquid buckets. We tend to match the tenor of our assets with our liabilities as closely as we can, and this also applies in the context of transaction size.

BISHOP If we explore a benchmark issue in one of the overseas markets we will make sure we reach an appropriate volume to ensure some level of liquidity. But I think we need to be realistic about the size of our debt requirement. Our requirement is big in the New Zealand context but small by worldwide standards. We will never get the same liquidity in some of our bonds that you would see in some of the bigger Australian issuers. From an investor point of view the more liquid an issue is the better, and we are conscious of this. But even if we are executing reasonably large transactions, in the scheme of things they are still not very liquid.

BUTCHER Investor feedback is very positive. Investors like the opportunity to participate in tenders on a regular basis. We publish our issuance programme in advance and investors also view this transparency positively.

JOHN Some of our bigger tranches, whether long- or short-dated, seem to be held by a certain class of investor. For Auckland Council, this means trading has been very scarce. It is possible we have also seen less trading than usual in the last couple of months.

BISHOP Investors find it difficult to buy the quantity of bonds they are looking for in the secondary market. It is not hard to sell bonds but investors wanting to acquire a decent-sized tranche may find it difficult.

JONES Data from the Reserve Bank of New Zealand show that non-repo turnover of New Zealand government bonds (NZGBs) was two-thirds higher during the year to the end of November 2016 than the previous period. We like to think our diversification strategy and the other approaches we use to support liquidity are having a positive impact.

NICHOLL I talk to some very important offshore investors that all hold the Australian market in very high regard in general. They make the point that while liquidity might not always be equal across the curve this is not to say it is poor in any parts of the curve.

KENNEDY From our perspective, liquidity has been a key concern for a long period. With regulatory reform and balance-sheet restrictions the ability for liquidity providers to support markets the way they previously did has declined.

BUSH Our sense is that liquidity in semi-government bonds marginally declined during 2016. We continue to receive positive feedback around the relatively good liquidity available in Queensland Treasury Corporation (QTC) bonds and we certainly endeavour to facilitate and promote liquidity where we can. We think this is in the best interests of providing investors with the best possible product.

WHITFORD I agree that turnover in semi-government bonds was certainly lighter in 2016 than it has been in previous years. Secondary-market demand remains solid, however.

TRIGONA Data reveal market turnover in TCorp bonds is lower over the last year. But this reflects the market in general because market turnover is broadly also down.

COLLINS From our perspective, obviously there is always someone who wishes for tighter bid-offer spreads. It might be because the Western Australian Treasury Corporation (WATC) programme is larger nowadays, meaning we are able to issue more bonds. But I have heard less adverse commentary from investors about liquidity during the most recent 12-18 months compared with the prior period.

COLLARD Efic bonds are not necessarily traded as frequently as our lager semi-government peers. However, liquidity in Efic paper has increased as a result of the local regulator announcing high-quality liquid asset (HQLA) level-one status for our bonds in mid-July 2016. This was a noteworthy change to market conditions as far as Efic was concerned.

BUSH We continue to see very strong support for our bonds from this sector, in new issues and in secondaries across the curve. Recently and more specifically, we have seen the sector switching out of some of our shorter-dated bonds and moving into our longer lines. This is probably consistent with what one would expect.

NICHOLL We regularly talk to domestic bank balance sheets. We don’t directly discuss with them their preferences to hold semi-government over Commonwealth paper, but given they hold around half of the semi market there is an obvious question as to whether this could have a negative impact on liquidity in semi-government bonds. Balance sheets often decide to buy our paper based on relativities between the swap curve and ours, among other considerations But demand looks relatively healthy and stable.

COLLINS With APRA’s version of Basel III there was a period when the Australian banks were building their HQLA portfolios, particularly with semi-government paper. Prior to 2010, ADIs might have bought 25-30 per cent of our paper and it is now at slightly more than 50 per cent. Going forward, I think the growth rate in ADIs buying our paper will be more in line with their balance-sheet growth as opposed to the ramp up required for the APRA guidelines.

KENNEDY Given how narrow the semi-versus-government spread differential has become over the last 12 months, there has been little incentive for investors to hold semi-government bonds as the government bond is a more liquid product which requires little in carry cost. Therefore, appetite from ADIs to hold government paper has increased.

WHITFORD ADIs account for more than 40 per cent of our investor base. As a result, we spend a fair bit of time understanding their needs. From these discussions, I do not see their demand for semi-government investment falling as a proportion of our outstanding volume.

TRIGONA We haven’t had the opportunity to speak extensively with investors since December, but one would expect ACGB holdings to have increased because the AOFM’s borrowing programme is relatively large and has been growing relative to semi-government issuance.

BUSH I agree that domestic real money has become more engaged with rates product. The sector is quite diverse but broadly we are seeing increased activity in our bonds, in both primary and secondary markets.

TRIGONA Our experience is also that fund managers prefer larger transactions and deals in the primary market – where they can see a clear pricing point – rather than in the secondary market. We do, however, continue to see demand for our bonds in secondary.

WHITFORD Domestic real-money interest ebbs and flows over time. There is always a proportion of our programme that sits with domestic real-money accounts.

COLLINS Australian domestic fund-manager engagement with the semi-government sector appears to have increased in the last 12-24 months. Again, this may be specific to WATC because of the relative cheapness of our paper compared with our peers.

KENNEDY We tend to find offshore fund managers have greater interest in longer-dated private placements. Domestic investors prefer to buy larger, benchmark lines.

NICHOLL The story for the AOFM can be best summarised by looking at what has happened in aggregate terms. The proportion of our domestic ownership has increased to around 40 per cent from around 20 per cent four years ago. This is a solid reflection of the engagement of the domestic real-money investor base in our market.

JONES KiwiSaver has changed the shape of the domestic market, and this became even more evident through 2016. Increased KiwiSaver investment provides a good opportunity for diversification of the local investor base and I expect KiwiSaver growth will continue to be supportive of the local market. KiwiSaver managers already have quite substantial exposure to global fixed income, so I don’t see a change in the mix as being a particular risk to the local fixed-income market given the ongoing growth we are starting to see.

BUTCHER I agree that KiwiSaver has been a great influence on capital markets – in fixed income in particular – as it has significantly improved capacity. We see a risk to the longevity of this, however, if more KiwiSaver managers decide to increase global fixed-income exposure in their portfolios relative to domestic fixed income. They may realistically do this if assets under management grow to the extent that they are forced to look offshore.

BISHOP Auckland Council might be one of those other issuers. I would have thought there would be a notable pick-up in demand because of KiwiSaver but, as you would expect, a lot of KiwiSaver funds diversify offshore. Locally managed portfolios realise they can get a pickup even if they go offshore. The pool of funds is growing and over time we will see a proportion of it come our way, but at the moment a significant share seems to be finding its way offshore.

BUSH We have had consistent engagement with the domestic and global investor base over an extended period of time. In my experience, issuers that consistently engage with investors through the cycles end up with the best franchises and the most loyal investor bases. At the end of the day, investors’ businesses are changing over time as well.

WHITFORD Ironically, we spend just as much time talking to investors about the quality of Victorian credit when we are not issuing bonds as we do when we are. You cannot be lazy in the management of your relationships just because you are in a cyclical period where your borrowing requirements may be less. Investors still need to understand the credit they hold and it is incumbent on us to make sure this happens.

COLLARD It is very important for issuers such as ourselves to maintain open dialogue with the investor base both on-and offshore. Efic works with its arranger banks to ensure this dialogue is facilitated. Even though we aren’t a large or consistent issuer it is necessary for us to continue updating investors not only on our funding requirements but also on changes to the underlying business. It is also important that we reinforce the strong explicit guarantee we have from the Commonwealth.

KENNEDY While relevant, the goal should not be to know which investors bought our bonds today or yesterday. What is important is to know where the next marginal buyer may be coming from. The ability to engage with investors across the globe that can participate in Australian dollar product is very important. Just because they are not buying today does not mean the situation won’t change tomorrow.

TRIGONA TCorp views its investor-relations work as extremely important. Each year TCorp aims to visit key investing clients and is guided by its dealer panel on the changing nature of bondholders and issuance prospects.

JONES The very nature of the market is that there will be times when, in relative-value terms, buying our bonds makes more sense for some jurisdictions than others. This is the key ingredient to overall liquidity. It is important that our investor-relations activities support this, to ensure credit lines remain open throughout the economic cycle.

BUTCHER We, like the NZDMO, have a very strong focus on servicing offshore investors and it is very important to be in front of them as much as possible.

BISHOP Investor engagement is very important to us, too – and of growing importance. Auckland Council is one of the few New Zealand issuers that raises funds offshore and overseas investors’ understanding of New Zealand, how its local government works and of Auckland Council specifically is relatively limited. Going forward it is likely we will need to spend more time in front of these big investors to get them up to speed on the credit.