Foreign-currency options

Larger funding tasks in the wake of the COVID-19 crisis make foreign-currency issuance a more plausible prospect for semi-government issuers. But it is still not likely to emerge in benchmark format.

DAVISON At the start of this discussion, Jose Fajardo alluded to the availability of foreign-currency markets as a fallback liquidity source for semi-governments. How close are issuers to being willing to do benchmark-sized foreign-currency issuance?

FAJARDO Our position hasn’t really changed – it comes down to whether there is a capacity issue for Queensland Treasury Corporation’s issuance in Australian dollars. I don’t see one right now.

We also look at relative value compared with our domestic curve. The 3-10 year part of the curve in US dollars is still well away from domestic pricing and we would have to see this move substantially to look at benchmark offshore issuance.

However, I think it is fair to say the pricing hurdle to undertake offshore benchmark issuance has gone down a little since the COVID-19 crisis. When you see a period where only short-dated funding is available in Australian dollars while the US market is still open, be it at a price, you may be more comfortable to pay a slightly higher price than before to have a foothold in those markets.

TRIGONA It is worth mentioning that we can achieve very long-dated funding in offshore currencies that we still don’t get access to in the Australian market. Our new euro bond is a case in point – it has a 30-year tenor. Being able to issue in foreign currencies adds to our funding mix but, most importantly, it gives us the duration we are looking for.

Since the crisis, we have been able to issue in the longer end – we have issued A$1.6 billion (US$1.1 billion) in 17 years or longer, including the equivalent of around A$300 million in euros.

We will do more of this issuance if we can because, at current rates, we are able to swap this into very good funding levels for our borrowing clients. It won’t be benchmark per se – it’s about using another tool to extend our duration.

LOFTING We have been doing a little in the euro market. Our view has always been that offshore funding would need to provide a volume, duration or pricing benefit we can’t get at home. In recent times that has been available in 30-year euro deals. I think Jose Fajardo describes it well when he says the hurdle to offshore issuance is now lower – as long as it provides a duration benefit and it swaps back attractively to our Australian dollar curve we will look at it.

GULICH Western Australian Treasury Corporation is very similar to the others – we keep options open through running EMTN and ECP programmes, and we monitor offshore opportunities closely. To date they haven’t made sense relative to Australian dollar opportunities. A lot more components would have to move in the right direction for it to stack up relative to other options. We are expecting more market challenges over the coming period, though, and we reserve all rights!