Notwithstanding cyclical variation, the banks have typically split their funding requirements roughly into thirds between Australian dollars, US dollars and other currencies – with euros forming the biggest component of the latter.

The quantum of tier-two debt to be issued could change the mix, though the banks themselves say they are not currently forecasting material change.

Based on funding and liquidity conditions in early August, there appear to be obvious incentives to direct certain types of issuance to specific markets. The domestic option provided record-sized senior deals at the start of calendar 2019 and spreads have tightened since. Meanwhile, tier-two transactions in US dollars attracted massive oversubscriptions, extended tenor and deep investor books.

Some investors are asking whether the somewhat less developed market for tier-two paper in Australia will lead major banks to raise less of their funding requirements domestically in future.

Ray Lee, head of credit at Kapstream Capital, says the senior spread rally in Australian dollars can be attributed in part to investors expecting less supply of senior paper going forward.

Meanwhile, Andrea Jaehne, senior credit analyst at AMP Capital, indicates that the spectre of reduced issuance of Australian dollar major-bank senior bonds has been a consideration in its assessment of tier-two pricing.

Any issue may be self-correcting, though. Paul White, global head of capital markets at ANZ in Sydney, says a reduction in senior supply should aid the development of a longer-tenor tier-two market locally as investors confront the reality of reduced overall access to major bank debt.

The banks themselves are quick to point out that while their tier-two requirements will be larger this should be viewed in the context of aggregate wholesale-funding programmes the large majority of which will continue to comprise senior-unsecured issuance.

So far, the compression of major-bank senior spreads has aided in bringing a diverse range of financial-institution issuers to the Australian dollar market, to take advantage of the absence of major banks from the senior space.

Whether or not a reduction of major-bank senior paper leads to more demand for tier-two remains to be seen. According Lee, there is little near-term impetus for local fund managers to look at longer-duration tier-two deals.

“The curve is relatively flat between 10-year non-call five and 15-year non-call 10 so it is not very attractive for investors to move out in duration. If this were to steepen it could bring some interest from investors. But there isn’t the natural long-dated demand in Australia that there is in the US and Asia.”