BlackRock sees major Australia banks cutting bonds as property lending slows

Bloomberg

Australia’s major banks will sell fewer local currency bonds next year as property lending cools in one of the world’s most heated real estate markets.
That’s the view of BlackRock Inc.’s head of fixed income in Australia Craig Vardy. The forecast concerning the lenders — some of the biggest corporate note issuers Down Under — comes as restrictions take ef-
fect on interest-only loans for property buyers.
“Slowing credit growth will see the banks have less need to lend, therefore less need to borrow,” Vardy said in an interview in Sydney. The retreat may not be negative for the local bond market as offshore borrowers could help fill some of the void, boosting issuer diversity, according to Vardy. “There’s absolutely demand for paper.”
The nation’s largest lenders have been building up deposits to help meet funding needs, while easing reliance on debt markets. The amount of Aussie bonds sold by Australia & New Zealand Banking Group Ltd., National Australia Bank Ltd., Westpac Banking Corp. and Commonwealth Bank of Australia has decreased 39 percent from a year earlier to A$26.5 billion ($20.4 billion) in 2017, according to Bloomberg-compiled data.
New bank capital rules unveiled in July also turned out to be less onerous than expected, easing the pressure on lenders to sell more bonds. NAB, ANZ and Commonwealth Bank declined to comment. Westpac didn’t immediately reply to emailed request for comment.
Kangaroo bond sales in 2017 have included multi-million-dollar deals from the likes of Verizon Communications Inc. and Bank of Montreal. Australia has been a hot funding spot for international borrowers seeking to diversify across different currencies, while local pension funds in the nation’s A$2.3 trillion retirement savings sector are hunting for fresh debt to buy.
There are signs of cooling in Australia’s property market, after home prices more than doubled since the turn of the century. House prices in Sydney — the most expensive property market in the world after Hong Kong — fell for a second month in October, according to CoreLogic Inc. data. Auction clearance rates in the city have been falling since March, following the lending curbs. UBS Group AG has said that Australia’s housing boom is “officially over.”
On investment opportunities in the Australian bond market, Vardy also said: BlackRock favors local currency corporate bonds; expects these securities to outperform Australian government debt Prefers shorter duration securities.