New market dynamics have given Australian government-sector issuers an opportunity to increase long-dated issuance. They have taken advantage of this opportunity, though this segment of the market is not yet fully mature.
WHEADON We have put a lot of work into developing the market beyond the 10-year basket. This is a key part of the ACGB investor diversification story. However, the reality is that liquidity is still shallower and less consistent at longer-dated points than in the 10-year basket.
Looking forward, the bulk of our funding will continue to come from the sub-12 year sector. In the right circumstances, however – and we saw this last year for our A$15 billion (US$11.5 billion) 2051 syndication – the ultra-longs can certainly make a material contribution. Liquidity has improved and the data show this in the form of greater turnover, but it is still a fraction of what we see in the 10-year basket. We did around 10 per cent of our funding in 2020 in ultra-long bonds.
We get a lot of engagement as we go longer, in particular from offshore and buy-and-hold investors. We will continue to be regular, consistent and transparent in our approach to the long end of the market.
FAJARDO We now have benchmark lines out to 2034 but the 20-30 year part of the curve remains bespoke and concentrated among a small group of investors. Some of our lines in that part of the curve are now more than A$1 billion but they do not offer the same liquidity as a benchmark line.
The quantum of issuance we have been able to do over the last 12 months has been very beneficial for our funding task. Our total outstanding volume in the long end is now more than 4 per cent compared with less than 1 per cent prior to COVID-19.
CINQUINA We have been a smaller user of ultra-long-tenor issuance, purely because we do not have an underlying borrower requirement for this tenor. We have a 2034 line that has less than A$1 billion outstanding. We also put our foot in the water for a 2041 line, which has approximately A$460 million outstanding.
The rates for this type of issuance are certainly attractive and will probably remain so. We continue to talk to our client base about this and we will look for opportunities to participate when we can align investor and borrower demand.
KELLY Much of the issuance that has come in the last 12 months has been on the back of a specific investor’s or group of investors’ demand. It has provided us with a great opportunity for duration to protect portfolios against interest-rate rises, but it remains an opportunity we have to take when it is there. I do not think it is something we can drive particularly hard.
It is more important that we build out our structural curve. I have been vocal about the fact that we have already moved to a liquid 12-year point from 10 years, and I think we will have a liquid 15-year point soon. But the next leap from there would be a big one.
KENNEDY We are being forced further out on the curve because we need to be cognisant of our refinancing risk. We cannot keep issuing into short-dated lines.
We have some good reverse enquiry, which has allowed us to consider seeding further issuance of longer-dated maturities. But we are naturally being driven there by the refinancing risk we are carrying.
Also, longer-dated issuance enquiry is coming in a variety of currencies. SAFA [South Australian Government Financing Authority] has not issued anything in foreign currencies but there are certainly opportunities being presented outside of Australian dollars.
One thing we need to be aware of is how the risks of these longer-dated transactions are being managed. SAFA does not have significant internal client demand for longer-dated funding beyond the maturity of our benchmark curve. So we need to consider the added interest cost of managing longer-dated issuance and the potential impact on the budget.