HUGHES The sovereign’s refinancing task is the main component of our issuance, having now reached the stage where we are refinancing bonds issued during the COVID-19 period. By contrast, our new issuance task for 2024/25 is just A$12 billion (US$7.5 billion).

We receive a lot of questions about crowding out in global markets, including from domestic and international investors. When I go to OECD [Organisation for Economic Cooperation and Development] meetings, meanwhile, issuers talk about the US crowding out other sovereign issuers. We will be keeping a close eye on the new US administration and whether it delivers cuts to the deficit.

MEDINA Our view on semis has been cautious for some time and our engagement is determined by the attractiveness of spreads relative to rating and liquidity. We can look at a range of asset classes so it is a relative-value story for us. We haven’t had a real test of liquidity in the semi-government market, and this is reflected in pricing.

The meetings we have had with high-grade issuers have helped us get a sense of market capacity that we don’t get just by speaking with other domestic investors, by helping us better understand the offshore investor base – including the hedge fund segment. This gives us further confidence in the sector.

For offshore investors, capacity might be more about what the RBA [Reserve Bank of Australia] does or how Australian fundamentals stack up relative to other investment jurisdictions.

In this sense, ‘capacity’ really only reflects the price clearing level. The conversations we have help us understand what the clearing level might look like based on who the current players are.

It is true that the pandemic and big spending profiles have permanently changed the way semis run their programmes. But, equally, when the semis talk to us about a new liquidity point or pocket of demand we view it as intrinsically positive.

TRINH Demand for semi paper and TCV [Treasury Corporation of Victoria] bonds has been exceptional over the past 12 months. With TCV’s funding task of around A$35 billion in 2023/24, we haven’t come up against market capacity constraints or relative-value concerns. We didn’t run into any issues placing this volume of bonds, which was a function of where yields and spreads have been relative to government and SSA [supranational, sovereign and agency] bonds, and on a swap basis. Semis are attractive on an outright basis.

Further, while there is some crossover of investors between the government and the semis, there has not been crowding out in the space. The continual growth of offshore demand for Australian dollar issuance is deepening and diversifying funding opportunities.

GIFFORD While the Australian dollar market continues to go from strength to strength as Michael has outlined, we have also enjoyed very strong offshore funding market conditions, which is pleasing.

For example Australian dollar spreads in the three-year part of the curve are actually slightly wider than euros and US dollars. This is a relatively unusual occurrence and is a signal to all four of the majors, generally, to issue offshore. This is a positive tailwind for domestic levels as supply will naturally be tempered.

Another thing to keep in mind is that we are now at a point where some of the bonds we issued 3-5 years ago are starting to mature. For example, we have a A$2.4 billion (US$1.5 billion) domestic maturity in January. This means some money is going back into Australian dollar investors’ hands as well as the continued inflows to Australian dollar fixed income we are witnessing.

CARROLL I agree that the compression of offshore spreads, particularly in the front end of the curve, has given us more flexibility to consider offshore senior transactions at levels that are attractive versus where we can issue domestically.

I also echo the comments about the depth and breadth we have seen across markets, and particularly in Australian dollars. The theme of enhanced liquidity underpinned by increased allocations to fixed income and demand out of Asia emerged in 2023. But throughout 2024 there was growing evidence that this perhaps has a medium-to-longer term structural basis and that larger Australian dollar deals are here to stay.

The other thing I would call out is the tier-two market – not only the volume of demand but also the extension of duration. Benchmark size in noncall10-year (NC10) format has been consistently available in this market for a couple of years. Prior to 2023, a public bookbuild approach to NC10 would have been unheard of. Now, in addition to ongoing reverse enquiry, there is sufficient secondary liquidity to support confidence in new trades.

WALLER The only thing I can really add is that domestic market growth does not seem to be temporary. The five-year senior trade we did at the start of the year was for A$3 billion but the book was A$6.4 billion – which shows how deep demand really is, whatever the final print volume.

JONES Capacity constraints are one thing that could compel an issuer to access foreign-currency markets, though we are not experiencing this at present. Pricing is another factor, but it could also be that it simply makes strategic sense.

There would be benefits from benchmark-sized non-Australian dollar issuance, such as diversifying our investor base, reducing Australian dollar supply to support domestic spreads and establishing an additional nonbenchmark curve. Once established, it also provides ongoing market access and flexibility in a risk-off period, if required.

While recent adjustments to our borrowing programme do not mean a material step-up this year, the forward projections have increased so the likelihood of offshore issuance has probably also increased since 2024.

QTC [Queensland Treasury Corporation] has programmes including US MTN and EMTN in place, so foreign-currency issuance is an option.

TRINH Diversifying our Australian dollar investor base, including offshore holdings, remains our primary objective. However, we did issue A$1.7 billion equivalent in euros and Swiss francs in 2024. TCV has also been working diligently to establish the necessary infrastructure for a benchmark foreign-currency deal.

We remain open to issuing in foreign currencies, but the timing will ultimately depend on economics, market conditions and investor demand. We can move quickly for a benchmark trade if the conditions are right.

TRINH It really depends on the market. If we’re looking at Europe, a benchmark transaction would likely be minimum €750 million (US$777.1 million). While we have the capacity to issue US dollars under our existing EMTN programme, our focus more recently has been on Swiss francs and euros, where pricing dynamics have been favourable.

HUGHES I think for it to be so it would have to be at significant volume – which is where my question about anticipated volume comes in.

MASTERS If it is, I doubt it will be for capacity reasons. There was concern about increased supply and whether there would be enough demand for Australian dollar denominated bonds, potentially forcing issuers to go offshore. However, there has been a diversification of offshore investors drawn by wide spreads and attractive yield.

Spread levels have been high before, yet offshore investors weren’t particularly interested in semis; despite years of marketing, demand remained limited. But the dynamics have shifted and offshore buyers are engaging.

The key questions on foreign-currency issuance are whether issuers actually need to rush offshore and, if the plan is to issue only around a billion US dollars or euros, whether it really makes sense.

TRINH I can confirm that there is still capacity in Australian dollars including increased holdings by offshore investors. Higher issuance and turnover have supported increased offshore participation in recent TCV trades.

For example, the TCV 2038 syndication saw a record 46 per cent allocation to offshore investors. This was followed by the 2035 syndicated top-up and the 2040 line, which had 53 per cent and 33 per cent offshore allocation respectively. The average offshore holding for these trades was 44 per cent.

In this context, we are ready to tap offshore markets if conditions warrant it rather than needing to do a deal immediately.

GULICH The effort required to enter offshore markets is significant. It’s not something issuers would do just for a single bond – it’s about establishing a long-term issuance programme. Building the infrastructure acts as a safety net and is a strategic risk-management tool. Even if it starts small, it has the potential to grow over time.

A key challenge is getting the organisation and the board aligned with the idea that this is an investment in future flexibility, even if it’s not needed immediately.

TRIGONA The new investor base the issuer attracts is key. In NBN Co’s case, when we embarked on our US dollar 144A transaction, last year, we marketed in Asia first and this led to a noticeable shift in our investor base. Many of the investors we met can now participate in our Australian dollar issuance, whereas previously they wouldn’t have even considered it – simply because they weren’t familiar with us. Over time, this marketing approach definitely pays dividends.

MASTERS There is also the question of targeting preferred duration. For example, if the Japanese bid for Australian dollars isn’t there for longer tenors, issuers might find demand for, say, a 12-year euro bond. It’s about selecting the right duration, which allows issuers to manage their curves strategically and adjust them accordingly to optimise funding. I can see different benefits to this approach, given 12-year euro issuance is relatively accessible.

BATSMAN There are a few things to consider when considering issuance into offshore markets, and an ongoing commitment to these markets through the cycle is a key consideration for TCorp [New South Wales Treasury Corporation]. Pricing relative to our domestic curve is another important component of our decision-making process.

TRIGONA I agree. Investors, particularly in Europe, expect consistent market presence. They want to see issuers return every 12-18 months. Even if it’s a smaller transaction, maintaining presence is key to building investor confidence and long-term relationships.

HILL It ties back to the importance of predictability from issuers. Investors want government borrowing authorities to be consistent and reliable in their issuance strategies.

MEDINA We tend not to invest in foreign-currency bonds because our funds are marketed as Australian. While we can take hedged foreign-currency risk, we have generally chosen not to in order to avoid the volatility associated with FX hedges. There are also other ways for us to generate alpha, such as through securitised bonds, rather than relying on currency exposure.

This said, we have mandates that allow for hedged foreign-currency exposure and if a compelling opportunity arose we would consider it. There are times when relative value in foreign markets is highly compelling, and in such cases we would participate.

These spreads would need to offer attractive compensation for hedging costs and reduced liquidity. If pricing is the same, we won’t take on the additional hedging risk. Relative value in Australian dollars is simply more attractive to us.

TRIGONA Right now, our curves – euro, and US and Australian dollars – are almost aligned, making it easier for us to pivot between markets as dynamics shift. We have also noticed that domestic investors have started picking up our US dollar and euro bonds and, with the increasing presence of the Asian bid and a broader global investor base, the overall curve has flattened across currencies.

Perhaps the same could happen with semis over time. Initially, offshore issuance might be more expensive but, as market dynamics evolve, there could be a natural evening out that allows issuers to strategically select and access the most efficient markets.

MEDINA Senior bank paper often trades more richly in Australia than in other markets. This is due to the differences in the investor base and the ongoing commitment of issuers in offshore markets. For true global issuers, arbitrage opportunities tend to diminish over time as market dynamics naturally adjust.

GULICH We expect to issue about A$5.6 billion in 2024/25 but as we haven’t had a new funding requirement for the last 4-5 years – it has all been refinancing. Over the coming years, we expect a modest increase in our funding task to between A$7.6 billion and A$9 billion as the Western Australian government grows its investment in key transport and energy infrastructure. We expect to continue to be in an operating surplus position, but record investment in economic infrastructure requires new borrowings.

MASTERS For investors, increased borrowing and larger programmes bring the fear of the unknown, and with ever-growing supply comes the risk of volatility. The more information that can be provided the better.

JONES I agree that it has been very important to maintain transparency and give investors as much information as possible about our funding strategy and our funding sources in this environment. QTC has a range of funding facilities across our term issuance programme through our benchmark and nonbenchmark bonds, floating-rate notes and green bonds, and we have US MTN and EMTN programmes. We also have short-term funding programmes. This provides us with flexibility to access a range of options.

We are also increasing engagement with investors, either through one-on-one meetings, group events or the marketing we do as a sector. This helps us as well as our peers and has been beneficial from QTC’s perspective.

GULICH It is not just information on funding needs that supports investor understanding, but detailing what’s driving the requirement from an economic and broader fiscal perspective. This means taking the time to provide information on things like the revenue base, underlying assumptions, and changes to capital and recurrent expenditure.

We are increasingly thinking about our messaging to investors along the lines of the type of information we have provided to credit rating agencies in the past. It’s about the thoroughness of how we tell the stories of our jurisdictions, clearly laid out within the context of Australia overall.

Australia has a lot of inherent strengths, including its system of government, universal healthcare, education, social services and superannuation schemes – which are in advance of many other countries. Showing this as part of what works in Australia, as well as the role the federal and state governments play, is important for investors to understand the whole picture.

HUGHES When we were in Canada, I was surprised that we had to provide what I would consider to be very basic information to some investors. We sometimes encounter the same thing in other markets. Some investors are super sophisticated and others need an ‘Australia 101’.

The point about transparency is completely spot on. For us it’s about being as boring as possible – regardless of what’s going on in markets, we issue every week and if we say we’re doing a syndicated issue we get on and do it. Our role is not just about funding the government but also about market functioning.

PAIRMAN We have recently had discussions with investors in Asia and Europe about this exact point, based on an uptick in enquiries from offshore investors.

HUGHES Australia’s triple-A rating is important here. We need to remind investors that we have very strong fundamentals. We receive a lot of questions, and have therefore been talking more, about our relationship with the Chinese economy. It is all at the margin – by themselves these factors probably wouldn’t move the dial – although we do everything we possibly can to help investors understand our market.

HUGHES It doesn’t surprise us. Post YCC [yield curve control], we were told we would see a significant uptick in demand from bank balance sheets – albeit A$40 billion is modest, relatively speaking. Different investor groups buy for different reasons. For those seeking to avoid volatility or for diversification out of the semis, ACGBs are a good place to start.

It is worth noting that, while increased buying is always positive, domestic bank balance sheets remain a relatively modest proportion of our overall investor picture.

MASTERS Over the history of bank balance sheet participation in Australian sovereign bonds, holdings have fallen in an overall sense. The pickup reflects a return to pre-COVID-19 levels.

HUGHES It is coming off a low base – which is a similar theme to superannuation fund buying. We have seen quite a significant increase in participation from these investors but – at around 8 per cent of our books – we are talking about big numbers but off a very low base.

HILL This is interesting, as the official data also show that superannuation funds are increasing their allocations to semis, albeit slowly.

GULICH We are hopeful that the super sector will gravitate to sovereign and subsovereign issuance as part of its diversification and risk management, and for liquidity requirements. But it’s not going to be in large volume initially and it won’t of itself replace the demand from bank balance sheets.

MASTERS Where we were in the cycle catalysed the super funds starting to come in. ‘Bonds were back’ in 2024 because markets thought yields had peaked and central banks were about to start cutting. Now I wonder, depending on how low cash rates go, how far yields rally from here and what the driver will be for super funds to build on existing holdings.

HUGHES We have a deep and broad investor base, and our focus in 2025 will be on uncovering unmet demand. Some semi-government issuers have already been to the Middle East for investor meetings and we will likely do this as well.

We are lucky: because we are the sovereign we are less volatile, and investors buy our bonds for specific reasons. The challenge will be greater for the semis now that the local banking sector has largely satisfied its HQLA [high-quality liquid assets] requirement.

We think about our marketing as ‘team Australia’. It is not helpful to any of the semis or to us if we compete. We need to be in step and find ways to issue our bonds successfully. Our clients are all Australian taxpayers – at federal or state level – and doing our jobs as effectively as possible will be all the more important going forward.

BATSMAN TCorp, along with our peer group issuers, has a long history of marketing to offshore investors, so we are well placed to leverage the investor relations work done to a wider array of new Australian dollar investors.

We recently did a roadshow in the United Arab Emirates, which is a jurisdiction we haven’t visited since early 2020. Most of the investors we met were new to us. Investors were enthusiastic about opportunities in the Australian dollar market, specifically the value offered by semis.

GULICH We have also heard that the Middle Eastern investor base is opening up and we have added this jurisdiction to our list to visit in 2025. We hear from our panel banks that some of the larger investors are coming to Australia, which is a good sign. If they are coming here, they are clearly serious buyers.

TRINH In meeting TCV’s funding task, we have expanded our investor relations engagement to further diversify the offshore ownership of our benchmark bonds. We have invested efforts in offshore marketing across Europe, Asia and the Middle East. TCV has visited accounts across the Middle East and feedback on TCV and the sector was very positive. Further, we are seeing increased engagement from official institutions, and the demand from global asset managers and hedge funds also remains strong.

JONES QTC is planning to visit the Middle East, as well as Asia, in the near term.

PAIRMAN There has been some buying from the Middle Eastern investor base. Issuers are visiting the region, although it may be a slower grind than some other jurisdictions given some of the difficulties in visiting the region currently. Hearing that some of these investors are prepared to come to Australia is a helpful development.

TRIGONA Investors from the Middle East have participated in our euro and US dollar transactions, and our sense is also that they are interested in Australia as a jurisdiction.

TRIGONA Given NBN is government-owned, investors want to understand the system of government in Australia, including the relationship between the federal and state governments. We explain that NBN is a tool for implementing government policy and is considered critical infrastructure for Australia.

Central banks and sovereign wealth funds are now significant investors in NBN, holding more than 15 per cent of our bonds. We have around A$20 billion outstanding so this volume is not insignificant – it has moved the dial for us.

HUGHES That’s incredible. Well done.

MASTERS It is interesting that you are beginning to see central banks coming into transactions.

TRIGONA Central bank and sovereign wealth fund participation in our transactions continues to increase.

GULICH One of the things we have been discussing with the AOFM is how the semi-government sector can partner with the AOFM periodically to tell the story. Our goal is to present Australia holistically and not all be running around tripping over each other. For instance, we all visit Tokyo every couple of years, and this works well. It is an efficient use of investors’ time and it is a very efficient use of our time as well.

MASTERS This is right. Investors don’t want to have back-to-back semis coming in. If everyone is ‘Team Australia’ they should be selling the same story.

JONES We try to understand which semis are travelling through which regions and when, and we take this into consideration when planning our own investor relations activities.

JONES Japan is not a prominent buyer of QTC bonds at the moment, likely due to currency dynamics and hedged yield considerations. It’s also possible that Japan is waiting to see the RBA’s next move before making investment decisions. We haven’t visited Japan since early June 2024, so we are due for a trip. Our engagement recently has been more around Japanese investors visiting Australia.

BATSMAN Japan remains a significant and important Australian dollar investor. We continue to market to this jurisdiction, and we value its participation. As we have discussed, the Australian dollar market, particularly the semi-government market, has expanded significantly over the past few years. This growth has somewhat diluted cyclical sensitivity to any single investor location or type.

HUGHES There have been some modest outflows, which is expected given factors like currency movements and hedging costs. But the Japanese investor base remains diverse and our global investor mix is even more varied.

PAIRMAN When Japanese investors are active, their presence can be very meaningful. The flow can shift quite quickly in either direction, which is why we talk about them so much – it is significant when they step in and when they step away we notice it.

However, they are rarely very active in the primary market; their participation is traditionally in secondary. For Japanese accounts to engage in primary issuance, several factors need to align: relative value, currency dynamics, hedging costs and other considerations.

Japanese investors remain important and they view Australia as an attractive place to invest. The foreign bond component is interesting as well, particularly in light of potential shifts in foreign-currency investments due to BOJ [Bank of Japan] policy and JGB [Japanese government bond] yields. But how this plays out remains to be seen.

TRINH Japanese investors have always been strong supporters of the semis and, despite the impediments to the degree of this support at the moment, we continue to experience good interest from Japanese life insurers. They are less concerned about hedging costs and rates given their long-term holding strategy.

But Japan has been well and truly surpassed by Europe as a percentage of our offshore turnover, because hedging costs are lower for European accounts. So far this year, European turnover is twice Japanese turnover, and non-Japan Asia is 50 per cent greater than Japan turnover. TCV will maintain the dialogue and outreach with these investors to support diversification in meeting our funding task.

TRIGONA At the same time, NBN has enjoyed growing demand from non-Japan Asia. For example, when we issued in the US last September, we received US$2 billion of orders from Asia before officially launching this 144A deal in the US. While not all bonds were ultimately placed in Asia, this demonstrated the strong regional interest in our issuance.

HUGHES We now spend as much time, if not more, in Singapore as we do in Tokyo. Traditionally, we have held forums in Tokyo because it provides an excellent opportunity to meet a large number of investors in one place – something we haven’t quite replicated elsewhere.

TRIGONA The AOFM’s green-bond deal in 2024 was very significant for NBN’s green-bond programme and we have had conversations with investors about the Australian sovereign bond.

NBN has issued nearly A$7 billion of green bonds and the AOFM’s entry into the market has reinforced our own, especially with European investors, where we benefited from some very significant buyers in our most recent transaction last year – because they now believe even more deeply in the Australian story.

HUGHES This is very good feedback. We were a little disappointed that we didn’t get as many European investors in our deal as we had hoped. Some of this was linked to pricing; the investors believed in the story from an ESG [environmental, social and governance] perspective but the portfolio managers were not convinced by the relative value. I would sum it up by saying we were happy but we could have been happier.

In saying this, more central bank money is now coming into the green bond in secondary. This is very encouraging. Europe is also reviewing its taxonomy, which may be supportive of increased demand for our labelled issuance.

TRIGONA It is also worth pointing out that European investors can buy our bonds in euros, which makes their participation more straightforward. This obviously isn’t possible for the AOFM. We get offshore participation in our Australian dollar denominated bonds, but the majority comes from Asia. It is really a case of locating the investors that can buy in Australian dollars.

HUGHES We know this is an area where we need to maintain focus. Since we syndicated our green bond we have subsequently seen each tender perform better.

Going forward, we don’t expect pricing to be quite as tight as we have now met the previously unmet demand. But we can keep adding to the line and we hope more investors will gradually come into the green product. Even so, and despite our focus on the programme, labelled issuance won’t be a significant part of our funding strategy as it is also constrained by our pool of assets.

GULICH Increasingly, what investors are looking for in labelled bonds is the information that comes with them. They want line of sight to the underlying balance sheet and to understand the risks associated with an issuer.

By offering a green bond – and details on the assets and programmes that support it – we are demonstrating that we understand the risks and challenges in our economy, and our responses to them. Investors are looking for this information, and increasingly they are doing so with unlabelled bonds, too.

HUGHES Our first impact report is scheduled to be released in the first quarter of this year. It will be challenging to meet the level of detail some investors are asking for. However, our report is more than 100 pages long and we have done our best to be as transparent as possible. The feedback we have received is that if we don’t know something to say so but to give an indication as to when we might.

TRINH Investors in the labelled market have become more sophisticated in evaluating sustainable bonds, and more focused on the actual impact of their investments. Therefore, investors are seeking integrated government commitments to sustainability – so they need to understand policies, frameworks and action at government level. This all ties back to understanding what’s on the balance sheet and various projects and assets.

Investors are more interested in the sustainability commitments and targets, and what government is spending the money on, than the label of the bond. However, the label supports issuance and it also showcases and disseminates sustainability information.

PAIRMAN It allows the state or sovereign to showcase what it is doing.

GULICH Or how the asset adds to something bigger.

TRIGONA Many investors are focused on overall issuer ESG ratings and have asked us whether we are seeking an MSCI rating. In fact, we have begun the process of obtaining one of these.

Some investors are constrained by their mandates and need this type of rating specifically, but our experience is that most investors make their own assessments.

MEDINA This is exactly what we do at UBS Asset Management. We have analysts that look at issuer-specific fundamentals and provide an ESG score, based on qualitative and quantitative research, and we also score issuers’ frameworks themselves.

Some of our European funds may have limits requiring a set percentage of the pool to have a minimum rating. We determine our own internal framework and we have our own score, but we also rely on external scores – MSCI is one of them but we use Sustainalytics as well.

This is separate to the labelling of an issue but it is how we determine every ESG recommendation via fundamental analysis from our analysts and portfolio managers.

MEDINA Both. Analysts are across the data – they undertake the fundamental work and they also engage in conversations with the issuer. In the case of NBN, we rely heavily on the knowledge of our analyst team in particular – which engages frequently in conversation with NBN.

TRIGONA Some investors reach out to us directly.

MEDINA There is also the other engagement piece, which is actively working as an investor so that if we have any concern we can raise it directly with the organisation.

TRIGONA We had some great conversations with a key European investor. The conversation led to the investor submitting a very large order into a deal book and the bonds were placed into their flagship green fund.