BofA: Mind The Gap - Bank Funding Tasks Will Grow In 2023/24

Bank of America note that “Australia's four prime banks are due to return funds obtained from the Reserve Bank of Australia (RBA) through the three-year Term Funding Facility (TFF) over the next 18 months and markets are pricing in a tighter funding market. The spread between bank bills (BBSW) and overnight indexed swaps (OIS) (i.e., BBSW OIS basis or BOB spreads) at spot price is around 4bp, while December 2024 futures prices imply a spread of over 25bp - around last cycle's average spot BoB spread. We only forecast a modest increase in bank bill issuance and expect an increase in long-term borrowing and US Commercial Paper (CP) issuance to absorb most of the funding required, but it is still reasonable to assume (as the market does) that BOB spreads will widen to pre-2020 levels. However, the funding task is highly sensitive to relatively small changes in the outlook for deposit and especially credit growth. In our view, investors should look for signs of a pullback in lending or drawdown in deposits to add a trade recommendation.”