Australia Sells Record A$7 Billion Bonds as Deficit Widens

Australia sold A$7 billion ($6.3 billion) of 12-year notes in the nation’s largest bond sale on record.

The sale of April 21, 2026 notes was managed by banks and exceeds the A$5.9 billion offered at the government’s last syndicated bond transaction in November. The securities were priced to yield 4.375 percent, or 24 basis points more than 10-year bond futures, according to the Australian Office of Financial Management.

The federal government has ramped up debt sales as it looks to finance a budget shortfall and extend the length of its yield curve. Treasurer Joe Hockey has pledged spending cuts after official forecasts at the end of last year showed Australia’s budget deficit may widen to A$47 billion in the 12 months to June 30, from a previous estimate of a A$30.1 billion shortfall.

“With such a large funding task this year it’s good to get a healthy syndication behind us like that because just takes the pressure off us for the remainder of the year,” Rob Nicholl, the AOFM’s chief executive, said in a phone interview. “We had an expectation that it would be between A$5 billion and A$7 billion, so the fact that we got to the upper end of our expectation was good.”

Sales Triple

Bank-led sales of government bonds almost tripled in 2013 to A$12 billion, including securities maturing in 2033 and an inflation-linked note due in 2035.

Today’s transaction was managed by Citigroup Inc., Deutsche Bank AG, UBS AG and Westpac Banking Corp. The AOFM said it doesn’t plan to increase the size of the bond before May. The transaction received A$9.93 billion of bids, according to the government’s funding arm.

Domestic investors bought 60.9 percent of the securities sold, while offshore buyers took up 39.1 percent, according to the AOFM. Asian purchasers from outside Japan accounted for 30 percent of the total.

“There’s a fundamental level of comfortableness that those Asian accounts have and an ongoing appetite for that,” said James Arnold, the Sydney-based head of Citigroup’s Australian dollar syndicate. “If I look at the distribution of this both geographically and by investor type, I think the AOFM would be very happy with the breadth of that.”

Central banks bought 16.6 percent of the transaction, while hedge funds picked up 18.1 percent and fund managers took 23.1 percent, AOFM data show. Most of the remainder was purchased by banks for their balance sheets and trading.

The benchmark 10-year bond yielded 4.17 percent at the close of trading in Sydney, little changed from yesterday and up 0.15 percentage point this month. The 15-year note yielded 4.60 percent.

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