Market welcomes $2.5bn Victorian government bond

Investors have piled into a $2.5bn Victorian government bond.

Offshore investors have rushed $2.5bn worth of Victorian government bonds, in a key test of financial market support for the state since its Covid lockdown. Picture : NCA NewsWire / Ian Currie

Offshore investors have rushed $2.5bn worth of Victorian government bonds, in a key test of financial market support for the state since its Covid lockdown.

The $2.5bn 5-year syndicated bond issued by the Treasury Corporation of Victoria was heavily subscribed, with $6.6bn in orders.

The deal, priced at 0.50 per cent, closed on Wednesday saw the first syndicated state government bond issued for the year. Commonwealth Bank, Citi, and Westpac were co-lead arrangers.

Almost 70 per cent of the bond went to Australian holders, according to CBA executive general manager for global markets, Anthony Hermann, who noted the diversity of the book.

Yield hungry investors from Europe, Africa and the Middle East snapped up 18 per cent of the book, followed by Asian investors who took an eight per cent slice.

North America trailed the pack with investors only taking four per cent.

“From my view the offshore participation was higher than I would have expected,” Mr Hermann said.

“We‘ve seen a pattern of super high quality issuers like Treasury Corporation of Victoria and Australian Office of Financial Management really received well by the international community.”

The new benchmark bond comes as slew of new issuances are set to hit the market.

Victorian Treasurer Tim Pallas announced in his November budget the government would seek to borrow $45.8bn to cover the state’s Covid recovery spending plans.

Wednesday’s $2.5bn bond closure takes the government towards the halfway mark of covering its total borrowings.

Mr Hermann said the obvious health of Australia’s economy, in contrast to much of the rest of the world, was attracting buyers.

“CBA and other participants have done a pretty good job of getting Australia out there globally and accepted in other people’s minds,” he said.

Bond buyers were mixed between hedge funds, asset managers, middle market bank trading books, and investors, he said.

The strong interest in the bond comes despite the downgrade to Victoria’s credit rating to “AA” by S&P Global last year.

S&P Global moved to lower Victoria’s rating by two notches due to the economic downturn that hit the state’s economy after the second COVID-19 wave ravaged the state for several months.

CBA director syndicate Nikolaus Romuld said although the downgrade had resulted in a widening of spreads relative to other semi-government bonds borrowing costs had not ballooned.

“This deal came with a small new issue premium,” he said.

“Yes, the downgrade has affected them, but it has not affected them as badly as one would think.”

Originally published as Market welcomes $2.5bn Victorian government bond