ANZ Bank NZ Ltd has raised $400 million in a five-year bond issue that will pay investors interest of 5.43% per annum.
The offer of unsecured, unsubordinated medium-term bonds opened on Wednesday and closed today (Friday), with the interest rate also set today. ANZ had sought $200 million plus oversubscriptions.
The bonds were priced at the indicative margin, which was 90 basis points over swap. Money raised will be used for "general corporate purposes", ANZ says.
The bonds will be issued on February 27, maturing five years later on February 27, 2019. They're being sold in minimum denominations of $10,000, and $1,000 thereafter. Interest will be paid twice annually.
ANZ's bond issue comes after Westpac last week raised $325 million in a "tap" issue, with 4.6 years to maturity, priced at 85 basis points over swap, giving a coupon of 5.545%.
Both ANZ and Westpac are advertising a 5.50% interest rate on five-year term deposits with a minimum deposit of $10,000. See all advertised term deposit rates here for one to five years.
Big week for bonds with market conditions good for issuers
In a big week for the domestic bond market, Auckland Council also announced plans for a 10-year retail bond issue, and details of a $45 million Christchurch City Council issue were revealed. These follow announcements of impending issues from Sky TV and Contact Energy.
Speaking before final details of the ANZ issue were available Mark Brown, Harbour Asset Management director of fixed income portfolio management, told interest.co.nz there were a few reasons for the sudden flood of bond issues including that conditions are good for issuers.
"(In terms of ) credit spreads, if you look at a long-term chart of a BBB or five year single A (credit rated) bond track against swap rates, pricing's pretty tight at the moment. So that's a good environment for the issuers," said Brown.
"Credit spreads have been getting tighter and bank credit spreads here (have) got inside where equivalent banks are selling bonds in Australia. That tension has been reflected recently in the Westpac deal that's come out, and in the ANZ deal that has been announced," Brown added.
He could identify nine domestic bond deals, that have been completed or announced, so far in 2014 across corporates, banks, supra-nationals and local government.
"We're getting a flurry and it's becoming more intense as every day goes by at the moment. (But) it's pretty hard to see that this would be a sustainable pace," said Brown.
What about rising interest rates?
With bond issuers ranging from the World Bank to Sky TV and Contact Energy, a broad investor base is being targeted. Brown said all investors should think about the domestic environment, where the Official Cash Rate is widely expected to start rising from March 13, and the global environment where the US Federal Reserve is tapering off its massive monthly bond buying programme.
"For retail the coupon is a big driver of their appetite and with some tightening priced into the yield curve, and also by going into longer maturity dates where yields are a bit higher, they end up being able to achieve a better coupon rate than they have seen for quite a while," said Brown.
"Not as high as we saw back in the mid 2000s, but certainly the highest we've seen for three years or so. So that helps stuff go even though sitting there in a rates environment where it looks as though rates are going higher, going and locking it in for seven years, you sit there and go 'it doesn't feel too clever to me.' But people are at least achieving a better rate," said Brown.
"And some people are taking the view that there's enough priced into yield curves at the moment to mitigate a lot of that interest rate risk."
He noted that Auckland Council's planned 10-year bond issue, whilst a long term traditionally for the New Zealand retail investor, suggests a maturing and deeper market. Overseas the Auckland Council has issued retail bonds in Switzerland (in Swiss francs) for 11 year terms, and done a 10-year Australian dollar denominated issue in Japan. See more on these here.
Meanwhile, Brown also suggested the first quarter is often a strong time for bond issuance with a lot of corporates running calendar year funding programmes.
"So if you're going to come back from your holidays, see the market conditions quite good and you know you are going to have to get something done during the course of the year, then let's get something done. That's certainly a factor," Brown said.
For fund managers it was a case of picking the best deals because "if we're getting all this supply, they don't have to buy everything."