Australian Banks’ State Bond Holdings at Record, Foreigners Add

Australia’s banks boosted holdings of the nation’s state government bonds to a record last quarter as lenders prepare to meet new regulations aimed at making them more resilient.

Banks held A$78.2 billion ($72.9 billion) of securities issued by regional borrowing authorities, or 37 percent of the outstanding debt, in the first three months of the year, according to data from the statistics bureau. That’s up from A$76.2 billion at the end of 2012. The share of foreigners’ holdings rose to A$68.3 billion, or 32 percent of the total, advancing for the first time in three quarters.

Securities sold by the federal and state governments are the only assets in Australia that count as liquid ones under Basel Committee on Banking Supervision rules, the Australian Prudential Regulation Authority has said. The regulations would force banks to hold enough easy-to-sell assets to survive a 30-day squeeze.

States increased their outstanding debt to an all-time high of A$212.8 billion from A$207.5 billion in the final quarter of last year, according to the bureau of statistics.

Semi-government debt returned 0.1 percent to investors this year after rising 8.5 percent through 2012, according to Bank of America Merrill Lynch data. The securities offer 60 basis points of extra yield compared with Australian government bonds, the data show.

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