Supply squeeze lifts Australian bank debt outlook

Binaya Dahal

Journalist

22 July 2026

A shrinking supply of Australian financial subordinated debt is creating a favourable backdrop for investors, as slowing bank issuance and a wave of securities being called reduce the pool of available assets, according to Schroders.

Helen Mason, head of credit at the $1.1 trillion asset manager, said the combination of shrinking supply and persistent investor appetite was creating one of the strongest technical environments for financial subordinated debt in recent years.

“The technical setup for financial sub-debt remains among the most compelling we have seen in some time,” Mason said.

The opportunity is being driven by a significant reduction in available securities. Approximately $5.4 billion of Additional Tier 1 and Tier 2 securities were called in June, while more than $10 billion of financial subordinated debt is expected to be called before December.

“We are seeing several factors happening. Major bank issuance is slowing, billions of dollars of existing securities are being called, and investor demand remains persistent,” Mason said.

“For investors looking to reinvest that capital, the challenge is going to be finding sufficient supply.”

The imbalance comes as Australia’s broader corporate credit market continues to attract strong investor interest despite geopolitical and macroeconomic uncertainty.

Corporate bond issuance is already close to a record pace with half the year remaining, driven partly by strong demand from offshore “Kangaroo” borrowers.

A recent A$1 billion wholesale hybrid transaction from CDC Data Centres was almost six times oversubscribed, while Volkswagen priced a $250 million senior unsecured Kangaroo bond, adding to more than $3 billion of outstanding issuance in the domestic market.

Mason said the strength of recent deals reflected the depth of demand for Australian credit.

“Against a backdrop of significant geopolitical and macro uncertainty, the Australian credit market continues to print deals at a remarkable pace,” she said.

“Yields remain high, performance has been solid and credit quality is exceptional. The level of demand for quality investment-grade issuers at the right price remains very strong.”

Looking ahead, Mason expects primary market supply to slow further as offshore issuers retreat during the Northern Hemisphere summer, and Australian companies and financial institutions enter pre-results blackout periods ahead of August reporting season.

“Reduced net supply into a market with persistent reinvestment demand should provide a constructive backdrop for credit spread performance through the quarter,” she said.

While economic data is beginning to show signs of softening, Mason said she does not expect material credit stress across the investment-grade universe in the near term.