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Australia to Sell 2025 Bond Next Week, Slow Sales Pace in ’13-14

Australia will sell a new 2025 bond next week and slow the pace of gross debt offerings in the fiscal year starting July 1 as the government seeks to rein in budget deficits.

Notes maturing April 21, 2025, will be offered through syndication, the Australian Office of Financial Management said today in an e-mailed statement. The funding arm said it expects to sell about A$50 billion ($49.5 billion) in the coming fiscal year. That compares with the A$53.6 billion of sales indicated for the 12 months ending June 30 in the federal budget presented by Treasurer Wayne Swan in Canberra yesterday.

The amount of outstanding government bonds maturing in a year or more will rise to A$260 billion by June 30, 2014, from an estimated A$233 billion a year earlier, the budget shows.

Julia Gillard, Australia’s first female prime minister, trails in opinion polls with an election due Sept. 14, after a blown pledge to return the budget to surplus and mining taxes that failed to reap promised revenue. Swan forecast the deficit will be A$19.4 billion this fiscal year, after projecting a surplus in October forecasts, as revenue dropped A$16.6 billion from previous estimates. The budget shortfall is projected to shrink to A$18 billion in the 12 months ending June 30, 2014.

Next week’s sale of a new bond line will be managed by Citigroup Inc., Deutsche Bank AG, UBS AG and Westpac Banking Corp., the AOFM said in its statement. The funding arm expects to sell A$700 million of bonds on most Wednesdays and Fridays from the week starting May 27 until the end of the financial year, it said.

Linker Sales

The AOFM will offer A$150 million to A$250 million of 2022 indexed notes this month and a similar amount of 2025 inflation-linked debt in June. The government will double sales of linkers to A$4 billion in the coming fiscal year, increasing the amount of such notes to A$22 billion.

That will swell the nation’s outstanding securities to at least A$282 billion by June 30, 2014, 6 percent shy of the A$300 billion legal borrowing limit. Swan raised the limit on borrowings this fiscal year from A$250 billion.

Australia’s sovereign debt market has more than quadrupled since the end of 2008 as the government borrowed to fund stimulus programs during the global financial crisis.

Yields Declined

Over that time, the nation’s benchmark 10-year bond yield dropped to 3.30 percent as of 11:18 a.m. in Sydney from 3.99 percent on Dec. 31, 2008. It climbed to as high as 5.88 percent in April 2010 and reached a record low 2.698 percent on June 4, 2012. The premium over similar-maturity U.S. notes was at 133 basis points, down 19 basis points this year.

Average yields at bond auctions fell to 3.23 percent in 2012, the lowest annual average in Australian Office of Financial Management data going back to 1982. The average this year is 3.29 percent, after the AOFM sold A$600 million of notes maturing in 2027 at an average yield of 3.6289 percent at auction today.

Net debt will peak at A$191.6 billion in 2014-15, or 11.4 percent of gross domestic product, up from A$161.6 billion, or 10.6 percent, in the current fiscal year, according to the budget. U.S. net debt is expected to peak next year at 89.7 percent of GDP, when the average for advanced nations will be 79.1 percent, the International Monetary Fund said last month.

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