Australian Government Debt Turnover Accelerates on Central Bank Activity

Australian government debt turnover grew last financial year at more than three times the pace of the previous period as federal and state authorities sold more bonds and overseas central banks became more active, according to the Australian Financial Markets Association.

Transactions in Australia’s government securities grew 60 percent to A$1.5 trillion ($1.4 trillion) in the 12 months ended June 30, after increasing 17 percent in the previous year. Turnover of debt issued by banks, companies and highly-rated foreign borrowers increased 34 percent to A$908 billion, according to the 2011 Australian Financial Markets Report released today. Overall, over-the-counter and exchange-traded financial market activity grew 23.5 percent.

Australian sovereign bonds provided the best returns among 26 markets over the past 12 months as a U.S. ratings downgrade by Standard & Poor’s and Europe’s sovereign debt crisis spurred investors to seek alternatives to assets denominated in euros and dollars. An increase in demand for the nation’s assets also spurred highly rated borrowers such as the World Bank Group and the European Investment Bank to boost issuance in Australia.

“Commonwealth and state programs were strongly supported by both domestic and offshore investors,” the report said. Amid Europe’s debt crisis “Australian bank and corporate debt should perform reasonably well when compared with global peers, benefiting from the relative safe-haven status of Australian government debt,” it said.

Australian sovereign bonds returned 11.2 percent in the past 12 months, Bloomberg/EFFAS indexes show. Corporate notes gained 10.4 percent, compared with 1.8 percent for a gauge of global company debt, according to Bank of America Merrill Lynch data.

Turnover in federal government debt securities by offshore central banks rose more than 140 percent last year, the report showed.

Rate Bets

Changing expectations on interest-rate moves by the Reserve Bank of Australia also boosted transactions in overnight index swaps, the report showed. Transactions rose 120 percent last financial year as Governor Glenn Stevens raised interest rates in November, increasing speculation policy makers would continue to increase the benchmark.

Since June, the prospect of slower global growth has spurred investors to increase bets on rate cuts instead, with a Credit Suisse AG index based on swaps indicating 157 basis points in reductions over the next 12 months. Australia’s benchmark rate of 4.75 percent is the highest in the developed world.

The AFMA report released today is produced by the Australian Financial Markets Association along with Austrade and the Australian Securities Exchange. It analyzes data collected from market participants and covers the period from July 1, 2010, to June 30.

To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

To contact the editors responsible for this story: Rocky Swift at rswift5@bloomberg.net

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