Credit issuers add new flavours to growing Australian dollar bond market

More and more foreign borrowers of all kinds have been coming to the Australian dollar bond market over the past few years, though until recently issuance had largely been dominated by sovereign, supranational and agency (SSA) institutions. In 2025,, the market bloomed some more, luring credit issuers to print strategic and subordinated capital deals.

The rising status of the Aussie market has meant it is now contending to be the third most important funding currency for some issuers after dollars and euros. Already by mid-2025, it had grown to rival sterling in relevance for SSA and bank issuers, argue some bankers and issuers.

Bankers highlight Crédit Agricole’s A$1.5bn ($972m) five year fixed and floating rate senior Kangaroo from August as an example of a deal size for a non-domestic bank that surpasses what the sterling market can offer.

One bank capital specialist, away from the deal, notes that it was not even the bank’s first Aussie dollar deal of the year, having issued a A$600m tier two dual tranche Kangaroo in January.

But though corporate and bank issuers expected to make debuts next year are showing growing interest in the market, plenty of SSA funding is still being done in it, especially late in the year.

For instance, KfW completed its 2025 core benchmark funding in euros and dollars in September. After that, the German development bank was active in various currencies, including twice in the Aussie market in October.

Yet some bankers argue that the Kangaroo bond market — international issuers issuing under Australian law — represents more than just an opportunity for residual borrowing, and not just for public sector issuers. Rather, it is becoming an important strategic market for those borrowers looking to expand their footprint.

One debt capital markets banker says it is “evolving more into a G3 market” as both liquidity and investor appetite has “dramatically increased” across the curve in recent years. “It has really grown, with issuers finding more capacity and a strong investor base and evolved into something on a par with the sterling market,” he says.

Bankers across the FIG and corporate bond markets back this view, with some noting it has already surpassed the sterling market for relevance. One London-based head of FIG syndicate points out that Australian dollar bonds are distributed far more broadly across Asia-Pacific, whereas UK investors dominate the sterling market.

Bankers are optimistic that the Kangaroo bond market will continue to flourish in 2026 as issuers reap the strategic benefits of diversification, though one banker argues that timing when to come to market is still an important factor.

“The Aussie market has come a long way,” he says. “There is more depth and liquidity. But coordination is still important and it’s important that the market can digest the supply that’s coming. Hopefully, as the market matures, we will see capacity for multiple trades to arrive at once, but I think we haven’t quite reached that stage yet.”

Meanwhile, despite the health of the market, some SSAs are still at the start of their Kangaroo bond journey.

Manuel Valdez, director of debt capital markets and derivatives at Corporación Andina de Fomento, says that while the issuer mainly funds in dollars followed by euros, it has been exploring opportunities in other markets, like the Aussie dollar. “We did a A$500m trade last year and plan to do more investor work,” he adds.

Funding in Australian dollars has often saved cost for issuers compared to the US dollar or the euro market. This is still a big driver of issuer appetite.

Several SSA funding officials tell GlobalCapital that they will only venture into the Kangaroo bond market if it makes sense from a funding cost perspective.

That includes the Dutch public sector bank Nederlandse Waterschapsbank. As a euro-based funder, it singles out the favourable funding arbitrage as a key reason to visit the Aussie dollar market.

“We see arbitrage opportunities improving in the shorter Aussie dollar maturities,” says Mark Dams, funding and investor relations at NWB. “The euro/Australian dollar cross-currency basis has modestly come our way,” he noted in October.

Jim Hopkins, assistant deputy minister, provincial treasury in finance for the Province of British Columbia, says arbitrage was a crucial factor in its involvement in the market. The Canadian province runs an Australian medium-term note programme.

“Issuing offshore bonds is about balancing fair performance for investors, while also achieving competitive funding levels relative to Canadian dollars, as the economics must be favourable for taxpayers,” Hopkins notes.

“The funding level and economics are very important for the province, so we are very patient and selective. More often than not, we are recording savings when issuing in foreign currencies,” he adds.

All of British Columbia’s foreign bond proceeds are swapped back to Canadian dollars. “The liquidity has to be there in long-dated cross-currency swaps for execution,” says Jason Lewis, director, capital markets for the province. “The longer the maturity, the more risk in execution, but we achieve competitive pricing and mitigate risk through collateralisation.”

Furthermore, the capital markets team gathers a lot of information from its dealer banks, “which helps us to be well informed when approaching swap and bond markets”, Lewis adds.

This approach has not been limited to the SSA sector as similar views have driven credit issuers this year.

In June, NextEra Energy — a US electric utility company — issued the first ever corporate hybrid bond in the Kangaroo market, a A$775m 30 year non-call five trade issued in fixed and floating rate tranches. The deal followed a couple of domestic corporate hybrids, and marked NextEra’s return to this market following its senior debut in 2019.

As the deal was priced at a similar level to its US dollar bond levels, according to sources based in Australia, the US utility chose to raise capital in Aussie dollars before it moved to the bigger and deeper euro market in early November with a similarly structured, €2.5bn dual-tranche transaction.

Then in August, Electricité de France made its Kangaroo market debut by reopening the 20 year part of the senior corporate market with a A$500m tranche, along with a A$500m 10 year note.

The 20 year leg was particularly notable as this was the first foreign offering in that part of the curve since Verizon’s sub-benchmark sized deal in 2021. Naturally, the deal has created expectations for more foreign long-dated forays ahead.

The zeal to access Aussie dollar funding has been evident in the FIG market too, with major international banks bringing tier two issues to the market.

In early March, HSBC defied rates volatility in most major markets, stemming from a government bond sell-off, as it ventured to the Australian dollar market with a A$1.5bn 10 year non-call five dual-tranche tier two Kangaroo. The trade came soon after a A$600m 10NC5 two-part tier two from Banco Santander at the end of February.

Market observers judged both issuers to have paid some new issue concession in local terms, but Santander also offered around 5bp-7bp of premium to its euro curve. This created different dynamics for both trades, with HSBC’s deal being 67% anchored by Australian and New Zealand accounts while the relative value of the Spanish trade meant a higher share of non-domestic buyers.

Undoubtedly, however, both deals were popular as HSBC ended with an orderbook in excess of A$4bn and Santander attracted A$4bn at peak demand, and settled at A$3.4bn.

But it was in late September that UBS gave the biggest vote of confidence to the Aussie market with its landmark AT1 — a A$1.25bn perpetual non-call 5.5 year, which was the first foreign foray in that part of the capital structure in six years.

“The Australian dollar market has been very conducive for issuance,” Chris Chadie, global head of issuance and funding strategy at UBS, told GlobalCapital at the time of the issue. “We had received reverse inquiries for an AT1. We felt it was the right time for a foreign bank to reopen the Australian dollar AT1 market.”

The deal was estimated to have come 40bp-50bp inside where UBS AT1s were trading in US dollars at the time. Though UBS does not issue AT1s in euros, the level it achieved — given US dollar AT1 funding costs were around 30bp-50bp better than in euros for much of 2025 — may have saved as much as 100bp compared to a euro AT1.

The trade had a wider significance, too. In December 2024, the Australian Prudential Regulation Authority (Apra) confirmed it was phasing out the AT1 layer from Australian banks’ capital requirements.

Though this is a uniquely Australian decision, with the majority of local banks’ AT1s sold to retail and non-institutional investors, many market participants have worried about obstacles to foreign banks’ re-entry to the Aussie AT1 market.

One of these hurdles was the targeting of retail investors, which UBS’s trade did not as its trade was all sold to institutional buyers.

Another was the documentation. UBS cannot issue AT1 capital under any law other than Swiss, hence it printed the trade from its EMTN programme.

It has led some bankers to believe Apra may still show some resistance towards a Kangaroo AT1 were an international issuer to try and issue one as it could be distributed to all types of investors.

Nonetheless, UBS offered a blueprint for international banks looking to issue AT1s in the currency.

With UBS eyeing further visits

to this part of the market, its approach suggests that the MTN route will be a plausible one from a regulatory perspective.

“This was not one and done,” said UBS’s Chadie at the time of its AT1. “We are committed to this market. Just like we did in the Singapore dollar market, we expect to be in a position to build up our AT1 curve.”

Cross-currency funding arbitrage is not of prime concern to every issuer, however.

For example, CPP Investments, which issues debt as the Canada Pension Plan Investment Board, typically leaves its local currency issuance including in Aussie dollars unswapped, meaning it can access the market more regularly.

“One of the reasons CPP Investments can be quite programmatic in its approach is that we do not swap back to Canadian dollars. Other borrowers might be more focused on the cross-currency arbitrage,” explains Sam Dorri, managing director, beta, collateral and liquidity management, at CPP Investments.

It placed two benchmark Aussie deals in the first quarter of 2025, raising A$4.15bn.

But for most SSA issuers, regardless of arbitrage considerations, investor demand has to be sufficient.

“The extremely tight SSA spreads versus US Treasuries is one of the reasons why the Aussie deals have been so successful this year as they still offer a decent pick-up to govvies,” says Mascha Ketting, senior funding officer at Netherland’s BNG Bank. “A five year SSA Aussie deal could give investors a pick-up of 40bp-50bp over Aussie government bonds, and we’ve seen a lot of real-money accounts going back to the Aussie market.”

Still, calibrating the right maturity with investor demand can be a balancing act. In the Aussie dollar bond market, investor interest is particularly strong at the longer end of the curve.

“We observe there is more investor interest in long-end Aussie dollars, though NWB does not have the balance sheet requirement in that part of the curve,” says Dams.

This is where bankers find strong participation from investors beyond the local market. Long-dated paper from SSAs as well as credit issuers can fetch bids from insurance companies across all of Asia Pacific.

Other issuers see appetite across the belly and into the long end. “There’s been good demand in Aussie dollars in the belly of the curve or even a touch longer to allow for some very attractive levels to be achieved,” says a European agency issuer.

But local buyers certainly play their part, especially at the longer end of the curve. “The superannuation system in Australia, combined with high yields and steep curve, has meant those pension investors have good appetite for highly rated European SSAs,” says a senior SSA origination banker.