Bond issuance in Australia slowed to the least in 18 months in June as the US central bank’s plan to pare back record stimulus sent global yields skyrocketing and the Aussie plunging to a nearly three-year low.
Just $25 million of notes were offered in the final 12 days of June as monthly sales fell to $3.55 billion, the least since December 2011, according to data compiled by Bloomberg that includes asset-backed deals.
Federal Reserve chairman Ben Bernanke laid out a path for dialling back bond purchases on June 19, roiling global markets, while a cash crunch in China dimmed the economic outlook for Australia’s biggest trading partner.
Issuers abandoned a volatile market beset by climbing costs and a tumbling currency after boosting non-securitised Australian bond sales to a record in May.
Corporate bond yields rose to 4.4 per cent at the end of June from 4.1 per cent on May 31, while spreads widened the most since September 2011, Bank of America Merrill Lynch data show. Comparable US yields rose 43 basis points.
“June was an ugly month,” said Mark Mitchell, head of credit at Kapstream Capital. “While it’s likely spreads have blown out too far too fast, it’s hard to know exactly where it stops.”
The dollar bought 92.6 US cents this morning. Its near-12 per cent decline last quarter was the biggest after the Syrian pound among more than 150 currencies tracked by Bloomberg worldwide.
“The Aussie dollar was something that attracted investors, but now we’re seeing a lot of that being unwound,” said Mark Abrahams, a director in National Australia Bank’s debt syndicate in Sydney. “The bid from Asian investors has gone very quiet in Aussie dollar assets, and that had been a key component helping to support both the primary and secondary credit markets.”
In May, non-securitised bond sales surged to $18.4 billion, the most for any month in data compiled by Bloomberg going back to 1999. An unprecedented 34 borrowers tapped the market for funds, including the federal government, which raised $4 billion with its largest-ever nominal bond transaction.
Issuance evaporated in June. Victoria sold the biggest Australian syndicated deal last month, pricing $750 million of notes due in November 2015 at 29 basis points more than sovereign debt.
The average yield premium for company debt in Australia over swap rates climbed to 121 basis points at the end of June, from a record-low 103 in March, Merrill Lynch data show.
“New issuance is on the backburner until there’s some stability and the macro picture is clarified,” said NAB’s Abrahams. “It’ll take more than just a couple of good days for things to open up again and you probably need a constructive week or so in credit before it makes sense for people to engage investors on the primary market.”
