Aussie Bonds Held Overseas Rise Even as Currency Plunges

Foreign ownership of Australian government securities rose last quarter from a three-year low, even as the nation’s currency plunged by the most in almost five years.

Offshore holdings climbed to 69.1 percent of total outstanding debt as of June 30, up from 68.3 percent three months earlier, according to balance of payments data released today. Foreign holdings peaked at a record 76.1 percent in June 2012.

The Australian dollar plunged 12 percent in the three months through June, the most since the third quarter of 2008, while the country’s government debt lost 0.1 percent, according to Bank of America Merrill Lynch index data. U.S. Treasuries declined 2.2 percent in the period.

“If you try and marry this data up with what happened in the second quarter, you’d probably be a bit surprised that offshore holdings weren’t lower,” said Michael Turner, a debt strategist at Royal Bank of Canada in Sydney. “There’s still going to be an underlying bit of support for Aussie bonds, just not to the degree that we saw previously.”

AAA Grades

Australian government bonds are among only 11 sovereign markets with a AAA credit score from all three of the biggest ratings companies. The benchmark 10-year yield was little changed at 3.95 percent as of 12:48 p.m. in Sydney, or 1.13 percentage points more than the rate on similar-maturity Treasuries.

Non-residents owned A$197.3 billion ($177 billion) of government bonds and bills, down from A$204.3 billion at the end of the prior quarter.

Total Australian government securities outstanding fell to A$285.7 billion last quarter from A$299.3 billion on March 31, government data showed. Foreign investors net purchases of government notes totaled A$1.9 billion, while the amount outstanding of such debt fell A$2.2 billion to A$280.2 billion. Foreigners sold a net A$4.7 billion of bills as the government cut short-term borrowings to A$5.5 billion from A$16.9 billion.

The Aussie dollar was little changed at 89.82 U.S. cents as of 1:23 pm. in Sydney from yesterday, when it climbed 0.9 percent, the biggest one-day advance since Aug. 9. It slid to a three-year low of 88.48 cents on Aug. 5 and has fallen 1.7 percent this quarter, the most among Group of 10 currencies.

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