Positive signs on the bond market provide a “very good backdrop” for participants at the start of 2023, although demand continues to outstrip supply, according to Gwen Greenberg, Head of DCM Australia, ANZ Institutional.
Speaking to ANZ Institutional Insights on podcast ahead of the ANZ Debt Conference in March, Greenberg said the Australian bond market was in no way short of liquidity but faced an imbalance in the supply dynamic.
“Even though there's been a lack of corporate issuance, the corporate spreads are ‘stale’,” she said. “But they have been ratcheting in.
“[It is] issuer dependent and issue dependent. But it's still it's setting a very good backdrop in terms of where we're at.”
Greenberg said issuers continue to grapple with outright yields, which have shifted “significantly” on the back of recent economic data, although duration is less of an issue.
“We do think the sweet spot continues to be in that mid part of the curve,” she said. “However, investors are now more willing to move out of the curve in an effort to try to find that supply.”
Greenberg made the comments in conversation with Gavin Chappell, Head of Loan Syndications at ANZ Institutional. You can listen to an edited version of the conversation below.
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Roadshow
Chappell said the dynamic of both bond and loan markets was changing as investors and issuers moved beyond COVID-19-era norms and back into “face-to-face” meetings.
“Borrowers haven't been meeting with their investors for basically the past three years,” he said. “There's been very little of that going on. Pre-COVID, a lot of loan-market deals would ‘roadshow’, to tap some offshore liquidity.
“We're having a lot more discussions about that happening again this year. I think taking borrowers out to see their investors is going to be a bit of a key theme again this year. We're going to see a lot more of that.”
Chappell said ANZ’s upcoming Debt Conference in the Hunter Valley would provide a valuable platform for this kind of discussion.
“I think the timing of Hunter Valley is probably perfect really early in the year,” he said. “People can now get out again and haven't been able to get out for quite a period.”
Greenberg has seen a similar trend on the bond side of the market, noting many investors are in a “recalibration” mode, concerned about the strength of demand.
“But the demand is certainly there” she said. “We've seen it as issuances kicked off very strong this year.
“Year to date, issuance is up about over 25 per cent, year on year. It is driven more than 50 per cent by financials, but order books are significantly oversubscribed.
“There's a significant amount of demand there and again, lack of supply, in particular [from] corporates.”
Peak
Chappell said the loan market was nearing a peak after a strong year featuring high levels of volatility.
Current activity is dominated by event-driven financing and M&A, he said, and not “corporates coming to the market to do sort of their regular refinancing activity”.
“[The year 2022] wasn't a record year but was close to a record year in the Aussie loan market,” Chappell said.
“I still think we're either close to the peak of this current cycle, but maybe even in some sectors there might be sort of a little bit of a rise to come.
“Comparing loans to bonds, that gap is much, much closer this year, or right at the moment, than it has been for probably the past six or nine months.”
That will lead to increased competitiveness in both spaces, Chappell said, and “might mean we maybe don't see quite as much volume in the loan market this year because of that”.
“As the bond market gets more competitive, the bank market will be potentially playing catch up during the year,” he said.
“I think it's going to take a little while for bank pricing to stabilise before it starts to contract potentially later in the year. But that will be a function of what happens to bond markets and funding costs during calendar 2023.”
Listen to the podcast above to find out more.
