Australia, the 'Rolls-Royce' of global sovereign bond issuers

  Australia has cemented its status as the "Rolls-Royce" of global developed market sovereign bond issuers according to a breakdown of buyers for its new 30-year bond, which once again attracted foreign investors  in an auction last week, as reported in the Australian Financial Review on 29 July, 2020.

More than two-thirds of the investors who bought the 2051 bond were from overseas, and particularly strong interest came from the UK and North American markets, Australian Office of Financial Management data showed. (see related story: Who invests in Australia?)

Part of the attraction of the deal is Australia's relatively high yield compared with short-term rates and other major bond markets. 

The deal was the third-largest government debt issue in history.

. The bonds were formally priced with a yield of 1.94 per cent.

"There's been really attractive interest from big markets which is all to be expected for cheap, quality bonds," said Jamieson Coote Bonds chief investment officer Charlie Jamieson.

"There’s huge demand. We are the Rolls-Royce of global developed bond markets."

It is normal to see over-bidding "but not in this magnitude; we’re talking tens of billions of demand going unmet," the bond fund manager said.

Prime Minister Scott Morrison said on Wednesday the sale was a sign of "confidence that the world financial markets have in both how Australia is managing the COVID pandemic, but also the financial management of the country".

"Having a bigger bond market brings in bigger players and they might have dismissed us previously but they are starting to come in now because it’s a good marketplace and a liquid marketplace," said Mr Jamieson.

The deep demand for Australian bonds has also underscored just how hard it is to find good returns in other developed markets, with quantitative easing lowering returns.

The 30-year US Treasury bond is yielding just 1.22 per cent, 30-year UK bonds have a yield of 0.6 per cent, and 30-year German bond yields are negative.

"Every other central bank is either conducting unlimited bond buying or extremely large QE programs. They're forcing investors to look elsewhere," said Altius Asset Management senior portfolio manager, Chris Dickman.

As the latest bond deal showed, the real money of the capital markets is overwhelmingly willing to fund the government's spending needs – at a rate it deems attractive. 


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