Australia Plans Longest Bond at 20 Years Amid Debt Ceiling Spat

Australia plans to sell 20-year notes, its longest-tenor nominal bond ever, fulfilling a promise by Treasurer Joe Hockey to extend the yield curve as the government seeks to finance ongoing budget deficits.

The country will next week sell a new line of April 2033 notes in a transaction led by banks, the Australian Office of Financial Management said today in a statement. The transaction will be the third new federal bond issued via syndication this year. Benchmark 10-year notes yielded 4.21 percent today, compared with an average of 5.95 percent over the past 20 years.

The issue comes as the Liberal-National government elected two months ago faces a battle to increase the country’s debt ceiling to A$500 billion ($467 billion) as revenue deteriorates. Hockey said before the election he wanted to issue longer bonds to create a benchmark curve and that he was willing to consider 40- or 50-year maturities for the country, one of just nine to hold top stable credit scores from all three major ratings companies.

“Until now Australia’s been one of the few sophisticated government bond markets that hasn’t had a bond of at least 20 years,” said Darren Langer at Tyndall Investment Management, which oversees about A$15 billion in fixed-income assets. “The government’s main consideration is extending its funding profile and it brings it in line with governments elsewhere.”

Widening Deficit

The Treasury said in its August pre-election outlook that the deficit will widen to A$30.1 billion for the fiscal year ending June 30, and the budget is no longer projected to return to balance in 2015-16. The coalition government has since said that the position has deteriorated and it plans to release updated projections before Christmas.

The government says the current A$300 billion debt limit will be breached next month, and yesterday sought approval in the upper house of parliament for an increase to A$500 billion. The opposition Labor party and the Greens amended the bill and sent it back to the lower house, where the government says it will reject it.

The budget is coming under pressure as signs of a slowdown emerge in the 12th-largest economy. The Reserve Bank of Australia last week forecast below-trend growth and rising unemployment in 2014 as resource investment drops and the currency strengthens.

The Australian dollar was at 93.48 U.S. cents as of 2:30 p.m. in Sydney, compared with an average of about 86.70 cents over the past decade.

The AOFM’s two previous syndicated sales this year saw it issue A$4 billion of 2025 securities in April, and A$2.1 billion of 2035 inflation-linked notes in August.

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