The Strategist

Australia sells a record number of bonds

01/18/2017 - 13:52

The Australian Government has placed 9.3 billion Australian dollars ($ 7 billion) of bonds with maturity in December 2021. This issue of bonds is the largest in the country’s history.

Martin Kingsley
Martin Kingsley
According to Bloomberg, demand among investors for Australian bonds was high, in spite of doubts about the country’s higher credit rating and the government's ability to cope with the budget deficit. Forecast of S&P Global Ratings rated Australia as "negative" in July.

Yield on the new bonds was 2.24%, said The Australian Office of Financial Management (AOFM). This issue has eclipsed placement of 30-year bonds for 7.6 billion Australian dollars in October. AOFM is also redeeming 655 million Australian dollars of bonds maturing in July 2017, and 2.41 billion Australian dollars of bonds maturing in January 2018 due to this transaction.

Sale of bonds maturing in 2021 is a "very good deal" for both buyers and the Government of Australia, noted strategist at Australia & New Zealand Banking Group Ltd. Martin Whetton. "This part of the curve stabilized in other markets, and selling has ceased", - the expert added.

The sale was preceded by a recovery in demand for debt securities. Yield on three-year bonds fell down, having reached 2.07% in December against the background of sales in the global bond market. The yield fell by 1 basis point to 1.97% at 16:22 on Wednesday in Sydney.

Australia's GDP in the III quarter of 2016 decreased by 0.5% compared with the previous quarter. The decline was recorded for the first time since January-March 2011. The country's economy grew by 1.8% as compared to III quarter of last year; pace of growth was the weakest since 2009.

Quarterly decline in Australia GDP has been noticed only three times in the last 25 years. They occurred due to flooding in Queensland in 2011, the global financial crisis in 2008 and the dotcom crisis in 2000. The country's economy was kept afloat with a boom in the commodity sector, but decline in the sector I changed the situation.

In August 2016, Australian Treasurer Scott Morrison welcomed decision of international agency Moody's to keep the highest credit rating «Aaa» for his country.

"Our highest rating helps keep lending prices low for business and consumers, promotes preservation of a strong position in the event of any external economic shock. This is important in an increasingly growing uncertainty in the global economy", - said politician.

Declaring preservation of Australia's highest credit rating, Moody's agency at the same time clarified that "the country's national debt is increasing and its level cannot be called low."

The agency’s experts also drew attention to some political factors that, in their opinion, in the coming years may prevent Australia from successfully solving the budget deficits problem. The list of impeding factors included "a small majority of ruling Liberal-National coalition in the House of Representatives (the lower house of the federal parliament)" and "fragmented Senate."

Presently, Australia is one of ten countries with the highest credit ratings of all "big three" international agencies - Moody's, S&P and Fitch. The top ten also includes Denmark, Germany, Luxembourg, Netherlands, Norway, Singapore, Sweden and Switzerland.