QBE raises funds as bond market bursts back to life

QBE raised $275m by way of floating rate subordinated notes and $325m of fixed to floating rate subordinated notes, due in 2036.

After a brief hiatus, the Australian bond market has burst back into life, with extra trading certainty since April causing about 10 groups to raise funds in the past week.

The largest is QBE, which is moving to secure about $600m. It guided the market that interest payable would be about 2.2 per cent above the bank bill swap rate, but it was priced at 1.95 per cent on the back of the strong demand.

QBE raised $275m by way of floating rate subordinated notes and $325m of fixed to floating rate subordinated notes, due in 2036.

Aviation Services Australia was also looking to raise about $600m, and the price has been suppressed by about 25 basis points.

Pent-up demand has been building after the Australian bond market was shut in April, when uncertainty surrounding trading tariffs introduced by US President Donald Trump created volatility.

Banks have largely been on the sidelines for bonds, but authorised deposit-taking institutions such as MyState and People First have also been raising money through the bond market in recent days.

The Wall Street Journal reported on Wednesday that bond yields in the US continued to climb with optimism about ­potential trade deals. That was after declines in the prices of longer-term Treasuries since April 2 drove up the yield on the benchmark 10-year note to about 4.37 per cent, according to Trade­web.

That climb happened even while shorter-term yields were falling, dragged down by bets that the Federal Reserve would respond to a slowing economy by cutting interest rates.

One major reason is uncertainty about inflation.

While investors think that inflation and interest rates will subside in the coming years, Mr Trump’s mercurial approach to trade policy has made them less sure about those forecasts.

Therefore, they are demanding more yield for the risk of holding Treasuries for a longer period – a form of additional compensation known as term premium.

The benchmark 10-year Treasury yield on Thursday rose to 4.529 per cent, marking the first time it has settled above 4.5 per cent since February.