Australia State Debt Lures Investors on Spreads, TCV Says

Investors are looking at buying bonds issued by Australian states as a way to diversify their holdings in the nation that has the highest yields among top-rated sovereigns, Treasury Corp. of Victoria said.

The funding arm of Victoria state met with domestic and international buyers in recent weeks, said Justin Lofting, general manager of treasury at TCV.

The extra yields offered by benchmark notes from New South Wales and Victoria, Australia’s biggest state economies, over similar-dated federal securities climbed to 2 1/2 month highs yesterday. The premiums offered by semi-government bonds, as notes by Australia’s six states and two territories, are often called, have increased as rates on government securities fell to records this month, according to data compiled by Bloomberg.

The recent decline in federal bond yields “has highlighted the attractive spread available for investment in semi-government sector,” Lofting wrote in an e-mailed response to questions on May 17. “TCV expects that this will result in greater investment from international investors in the period ahead.”

The yield on the Australian government’s 5.75 percent security due July 2022 rose two basis points, or 0.02 percentage point, to 3.17 percent at 11:49 a.m. in Sydney after reaching 3.058 percent on May 18, the least in data compiled by Bloomberg that go back to 1969. The rate on the three-year note fell to 2.336 percent last week, while the 15-year yield dropped to 3.391 percent, both records.

‘Attractive Spreads’

The extra yield offered by Victoria’s October 2022 bond over comparable federal government debt rose to 109 basis points yesterday, the most since Feb. 3. The premium offered by New South Wales’ May 2020 security over similar-maturity sovereign notes climbed to 118 basis points yesterday, also the widest gap since Feb. 3. Both states hold AAA ratings from Moody’s Investors Service and Standard & Poor’s.

The combination of New South Wales’ top credit score and “attractive spreads to Commonwealth government bonds means investors remain good buyers,” Tim Hext, head of balance sheet and funding at the state’s Treasury Corporation, wrote in an e-mail on May 16.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE