Foreigners Cut Australian State Bonds First Time Since June 2011

Foreign buyers reduced investments in Australian state government bonds for the first time since the second quarter of 2011 after the biggest borrower was downgraded by Fitch Ratings and yields dropped to record lows.

Non-resident investors lowered their stake in bonds issued in Australia by regional governments to A$68.9 billion ($72 billion) as of Sept. 30, from A$70 billion on June 30, according to data published by the Bureau of Statistics in Sydney today. Local banks boosted their holdings to A$70 billion from A$60.5 billion, the first time they exceeded foreign holdings since the third quarter of 2005.

Semi-government debt, as the borrowings of Australia’s states and territories are known, returned 7.75 percent this year, according to Bank of America Merrill Lynch.

Average yields on state debt fell as low as 3.31 percent in October, the least in Bank of America Merrill Lynch index data starting in 1992.

Fitch reduced Queensland state’s ranking to AA from AA+ on Sept. 13. Moody’s Investors Service revised the outlook on its Aa1 rating to negative from stable on Nov 26. Standard & Poor’s currently has the state at AA+, the second-highest grade, with a stable outlook.

Queensland has about A$77 billion of outstanding bonds, according to data compiled by Bloomberg.

To contact the reporter on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net

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

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