Debt boom hits pause Down Under as US election looms

By Tom Westbrook

SYDNEY (Reuters) - Australian dollar debt sales, running at the fastest clip on record, are starting to hit the brakes as capital markets hunker down for the U.S. election, according to bankers in Sydney.

Some A$267.6 billion ($180.4 billion) has been raised in the debt market over the year to Oct. 8, the largest figure on Dealogic records stretching back to 1995, as pandemic-era borrowing has been refinanced into hot investor demand.

Financial institutions have sold A$95.6 billion in debt - a record for the year-to-date, as is the A$61.4 billion in asset or mortgage-backed debt. Total corporate issuance, at A$26.4 billion, is up nearly 70% on the previous year.

Yet bankers said the rush to do deals - encouraged by benign market conditions and an expectation that the U.S. election could make this quarter unpredictable - has abruptly slowed.

The pause, albeit in a small corner of the world's debt market, points to an imminent broader drawdown in global capital market activity in the lead up to an unusually close U.S. vote.

"If we look forward, I think the volatility is kicking up, we're going into the U.S. election, so that's my big caveat," said Simon Ward, head of debt capital markets for Australasia at Mizuho Securities Asia in Sydney.

"The conditions were excellent...every market, the major markets anyway, have been on fire," he said.

"In the domestic Aussie dollar market for corporates, it's a record by every metric. But a factor in that has been getting ahead of the back end of this year, and I'm sitting at the desk today and literally catching up on more of the administrative daily tasks - it's a bit of a gap and a bit of a breather."

On the demand side LSEG data showed Australian bond funds drawing in $4.8 billion for the first three quarters of the year, the biggest such rush in fourteen years.

Performance has been solid, too, and at the investment grade end of the market, the ICE BofA index of AAA Australian corporate debt is up 3.8% this year against a 2.2% rise for the U.S. AAA corporate index.

SELLERS MARKET

Australia's big four banks dominate the market and most other corporate issuers are domestic, though the buoyant conditions have attracted global banks from the U.S. and Europe and corporations including Nestle and BP.

New sellers such as Registry Finance, the issuing entity for the operator of Queensland's land titles registry, also debuted at long maturities of 7.5 years and 10-years, which trade at yields above 5%.

"It's definitely felt like a seller's market this year rather than a buyer's market," said Amy Xie Patrick, head of income strategies at fund manager Pendal in Sydney, who nevertheless has seen inflows into her funds.

"I do think that a lot of the attraction of our credit markets this year has been to offshore Asian investors who are especially yield hungry. And you've seen high levels of demand for those kinds of bonds come through," she said, referring to tier 2 bank debts.

To be sure, Australian dollar debt remains a relatively small slice of the $7.2 trillion that Dealogic says was raised in global debt capital markets so far this year. But it can be a bellwether for global trends and a slower fourth quarter looms.

"What we have seen this year is certainly a bringing forward of plans," said Nick Kalisperis, head of debt capital markets syndicate for Australasia at UBS in Sydney. "In that sense a lot of what needed to be done has already been done."

(Reporting by Tom Westbrook. Additional reporting by Gaurav Dogra in Bengaluru.; Editing by Shri Navaratnam)