Debt markets offer short-term window for issuers

The short-term outlook for credit markets is positive, according to Paul White, ANZ’s Head of Debt Capital Markets - notwithstanding the slowing global economy and heightened political risk in both Australia and the US ahead of upcoming elections.

“In terms of the current market, it has been very volatile indeed in the last three months,” White told ANZ Institutional on podcast ahead of the bank’s annual Debt Conference in the Hunter Valley.  

“More recently, we have seen things stabilise, at the same time central banks have become more dovish in terms of their rhetoric.”

“The supply we were expecting hasn’t materialised and at the same time, investor inflows, particularly in investment grade, have actually been larger than expected."

You can listen to the podcast below. 

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“Our overall outlook is more risk but short term we’re actually quite positive.”
Paul White, Head of Debt Capital Markets, ANZ

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White said in the longer term there were still some risks in the market, particularly around credit.

“I think clearly slower growth expected this year will have an impact on earnings,” he said. “There is some political risk both locally and globally, particularly as we go into the backend of this year.”

However market conditions in the short term were solid, White said, and issuers should take note.

“Our overall outlook is more risk but short term we’re actually quite positive,” he said.

“Credit curves are actually fairly flat at the moment as well as the actual rate curve. So if an issuer can come to the capital markets and issue duration, I think it will be very well received.”

Demand for Australian credit continues to be dominated by the top 30 institutional investors based in Australia. This strong demand is exacerbated by the lack of issuance as well as additional liquidity from Korean life insurance companies, Taiwanese insurers and more recently mid-tier institutional funds.

“We have seen a lot of growth in terms of funds in the mid-tier insto sector,” White said. “Typically these investors in the past have been very much focused on term deposits, safe, short term assets. But they are looking for more yield, they are winning more mandates [and] funds.”

All about green

Participants at ANZ’s annual Debt Conference will also hear about the development of the green-loan market as another financing option for companies transitioning to a low-carbon economy.

“In sustainable finance broadly in 2019, I think it is all about loans,” Katharine Tapley, ANZ’s Head of Sustainable Finance, said.

“During 2019 and onwards, the loan markets will be catching up with where the bond markets are in providing further options for clients who are transitioning to low carbon and more sustainable development.”

Investors in sustainable finance are placing more importance on disclosure and transparency when investing in green bond or loans.

“In the recent conversations, it’s coming out in investors that the positive for them in investing in these instruments is the disclosure and the transparency,” Tapley said.

Sharon Klyne is Associate Director, Communications, Institutional at ANZ

ANZ will host its annual Hunter Valley Debt Conference from February 28 to March 1. You can read coverage of the event on https://institutional.anz.com/.