Jonathan Shapiro: Why the integrity of bond markets on both sides of the Tasman is at stake

The integrity of bond markets on both sides of the Tasman is at stake as regulators probe issues of potential market manipulation, Australian Financial Review senior reporter Jonathan Shapiro says.

Shapiro is covering the Australian Securities and Investments Commission (ASIC) probe of the ANZ Group's role in a A$14 billion 2023 Australian government bond sale, and taking an interest in the Financial Markets Authority's probe into possible manipulation in New Zealand's wholesale interest rate and government bond markets. 

Speaking in the latest episode of the Of Interest podcastShapiro says the ASIC probe of ANZ boils down to allegations of interest rate rigging, allegations of providing false information to the Australian Office of Financial Management (AOFM), which manages the Australian government's debt portfolio and hired ANZ as risk manager for government bond issues, and workplace culture issues.

"What is alleged is in that role they [ANZ] might have moved the market in their favour and made trading profits. And those trading profits came at the expense of the [Australian] government because ultimately their alleged actions forced up the government bond [borrowing] rate. We calculated about five basis points extra ... and that's for $14 billion of debt over 11 years," Shapiro says.

ANZ Group CEO Shayne Elliott says the bank itself has found no evidence misconduct or market manipulation by ANZ in connection with the bond issues cost the government financially. Elliott also says whilst some information provided to AOFM may have been incorrect, this was a mistake, rather than a deliberate act. Meanwhile, three traders have left the bank and a fourth has been warned.

Shapiro says what's being alleged is very serious and everyone in Australia has an interest in the outcome because the government was ANZ's client.

In New Zealand the Financial Markets Authority (FMA) says it's investigating two complaints about possible market manipulation in NZ's wholesale interest rate and government bond markets.

Shapiro says market integrity is absolutely critical, with pension funds, sovereign wealth funds, central banks and other investors trading government bonds.

"They don't want to be on the other side of of any funny business...it's extremely important that these markets are trustworthy."

Because they're viewed as the risk-free rate of return, government bond rates underpin the whole market, Shapiro notes.

"So regulators should absolutely be looking at any issues in these markets and making sure that they're transparent, that they're clean, and that there's nothing untoward going on. And one would think that participants in that market, especially the big banks of countries like New Zealand and Australia, would have an interest in making sure that, firstly, they're doing everything they can for their client, the government, but also making sure the bond market works as efficiently as it can."

The ANZ Group has been left out of the last three Australian government bond issues, Shapiro says.

In the podcast Shapiro also talks about why he refers to the ASIC probe as the biggest scandal in the ANZ Group's 182-year history, goes into detail on the three key issues at stake and the ANZ Group's responses, what's at stake for the bank potentially financially and reputationally, as well as for Elliott, possible similarities with what's at issue in the FMA investigations and more.

*You can find all episodes of the Of Interest podcast here.