The ability to secure size and tenor was one of the factors that all the treasury officials attending ANZ Aussie Day said was an attractive feature of the Asian US dollar bond market. Asia’s Reg-S bond investors have also shown an appetite for non-rated Australian credit, which was an important factor when looking where to fund, according to Edward Collis, Group Treasurer at recruitment website Seek.
“We recently set up a Reg-S only EMTN programme and as we don’t have a rating, we are pleased to see there is significant appetite for unrated Australian names,” said Collis.
A seemingly insatiable appetite
The benefits of diversification and the range of tenors on offer are clearly two of the main reasons Asian investors are piling into the Australian credit markets. The maturity sweet spot for Asian borrowers tends to be in the three-to-five year range. Yet, Asia’s growing pension and insurance liabilities means there is increasing demand for longer-dated notes.
“Australian credit belongs to one of our favoured asset classes of the last few years,” said Ben Yuen, Chief Investment Officer, Fixed Income at BOC HK Asset Management. “It offers a very important source of diversification for our portfolios.”
The relative value Australian credits offer compared to issues in other major Asian markets is also a draw for the region’s investors. Investors view Australian issuers as offering both the lower risks associated with a developed market and a strong regulatory regime, as well as the potential to deliver alpha as issuers seize the growth opportunities Asia offers. All but one of the US dollar bonds from Australian issuers have traded up this year, with many of the high yield names recording double-digit spread tightening, according to ANZ data.
The only real complaint Asian investors have about the Australian credit market is that there are not enough issuers to meet the demand. Increasing the number of issuers will have benefits for market development and investors, said Arthur Lau, Co-Head of Emerging Markets Fixed Income and Head of Asian ex-Japan Fixed Income at PineBridge Investments.
“We need more names, not just in high yield but also in investment grade. If the Australian universe can expand, it will improve the understanding of the asset class and be positive for Asian investors.”