The Paris Olympics may be just around the corner, but bank-subordinated debt is the hottest ticket in town right now with investors queuing up to get a slice of the action.
ANZ is the latest bank to tap the domestic subordinated debt market. Spreads continue to contract at pace as insatiable demand continues.
The new issue was a fixed to floating, 15-year, non-call 10, so longer than the more common 10-year, non-call five. ANZ issued $1.9 billion after it achieved an all-time record order book for that term of A$4.2 billion.
In just a few days, the spread contracted significantly. First marketed at 200 basis points (bps) over swap, then launched at a revised guidance of 190-195bps and printed at 183bps. Approximately six weeks ago, NAB issued over the same term and its deal priced at 200bps.
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ANZ’s last 15NC10 subordinated debt transaction in February 2023 priced at 280bps over swap. Needless to say, older sub-debt issues are now trading above par, delivering a gain to holders if they decide to sell.
The very low-risk issue, rated A- by S&P Global had an initial yield of 6.124%.
The only way to access these over-the-counter bonds direct is through a bond broker – see our list of small parcel brokers.
Van Eck has an Australian Subordinated Debt ETF (ASX:SUBD) that invests in 28 subordinated debt issues. Its one-year return to 30 June 2024 is 7.46% and its yield to maturity as at 23 July 2024 was 5.96%.
BetaShares has an Australian Major Bank Subordinated Debt ETF (ASX:BSUB) that only invests in major bank sub-debt. It can hold a maximum of 16 securities. BSUB is new and launched in May. At 23 July, its all-in yield was 5.74%.
Note: This note is for education purposes only and none of the securities mentioned are recommendations.
