Big news this week as Alphabet, owner of Google and one of the mega AI issuers, launched an Australian dollar bond issue. It is a senior unsecured three-year Kangaroo with six tranches:
- A three-year fixed with price guidance of 75 basis points over a semi-quarterly swap or indicative coupon of 5.35%
- A three-year floating rate note with price guidance of 75 basis points over 3-month BBSW
- A five-year fixed with price guidance of 100 basis points over semi-quarterly swap or indicative coupon of 5.65%
- A five-year floating rate note with price guidance of 100 basis points over 3-month BBSW
- A 10-year fixed with price guidance of 145 basis points over semi-quarterly swap or indicative coupon of 6.40%
- A 20-year fixed with price guidance of 195 basis points over semi-quarterly swap or indicative coupon of 7.10%.
There has been no mention of how much the company is looking to raise. Will it leave anything on the table? I have little doubt that spreads will contract and demand will be significant. It’ll be interesting to see the bids for the longer-dated fixed-rate tranches; the 20-year paying over 7% looks tempting.
US government debt hit US$40 trillion this week, and government bond rates are rising.
Last week the US government raised US$25 billion in 30-year bonds at 5.216%, the highest it has paid since 2001. Further, the 30-year hit 5.311%, its highest level since 2007. According to CNBC, foreign holdings of US Treasuries fell in June as the three largest holders, Japan, the UK, and China, all reduced holdings. See yield changes over the last year in the graph below, and note the current solid line, considerably higher than just one month ago.
This week’s thoughtful lead article is from Betashares’ Chamath De Silva, who discusses links between Australian government bond yields and productivity.
Trying to navigate complex markets can be difficult. Fortunately, many local and global asset managers I’ve spoken to say the domestic market offers good relative value. Kellie Wood from Schroders thinks softer Australian data gives the RBA scope to move towards lower rates while the US still faces an uncertain outlook.
Inflation is still a major concern, and if you are thinking about ways to fight it, this article from Atchison consultancy suggests a three-pronged approach.
Thomas Poullaouec from T. Rowe Price is back with his monthly global asset allocation View from Australia article.
Popular contributor, Chris Iggo from BNP Paribas considers the US Treasury outlook and thinks fixed income investors are better served in short duration assets.
Finally, Janu Chan from Bite-Sized Economics has a great in-depth explanation of what is going on with the Japanese yen.
In other Australian corporate bond market news:
- ANZ raised $4.25 billion after receiving bids for $9.77 billion, across multiple tranches:
- A five-year senior unsecured deal raising $2.5 billion priced at 66 basis points over 3-month BBSW
- A Tier 2, subordinated bond raising $1.75 billion, in three tranches:
- A 15-year non-call 10 (15NC10) fixed-to-floating rate tranche for $250m with a 6.446% coupon
- A 15-year non-call 10 (15NC10) floating-rate tranche for $750m priced at 157 basis points over 3-month BBSW
- A 20-year bullet, raising $750m with a 6.749% coupon
- CBA raised $2.5 billion in a three-year floating rate note priced at 56 basis points over 3-month BBSW
- Challenger IM has mandated a 7NC6 senior unsecured bond
- Dominion Investment Group raised $130m in an unsecured, unsubordinated deferrable floating rate note priced at 320 basis points over 1-month BBSW
- Newcastle Coal has raised $200m in a five-year senior secured fixed-rate bond deal, which priced at 142 basis points over semi-quarterly swap or 6.094% coupon
- NextEra Energy has mandated a subordinate kangaroo deal with a 30NC5.25 and/or 30NC7.5 years and/or 30NC10 years term with coupons of fixed to floating or floating (30NC5.25) and/or fixed to floating (30NC7.5 and 30NC10)
- Westpac priced a $1.5 billion dual tranche 10NC5 subordinated Tier 2 bond:
- $1.25 billion floating rate tranche at 127 basis points over 3-month BBSW
- $250m fixed-to-floating tranche with a 5.901% coupon.
Hope you’re having a great week!
