Foreigners Gobble Up Record A$5 Billion of Aussie Bond Sale

  • Almost two-thirds of 30-year Australian note went offshore
  • Demand surge follows drop in foreign holdings of Aussie debt

Unprecedented buying from offshore helped Australia raise a record amount at its debut 30-year bond sale, with buyers from abroad taking 65.2 percent of the A$7.6 billion ($5.7 billion) offering.

The only other time non-resident investors have bought more than half of a bank-led nominal bond deal was back in November 2013, when they grabbed 59.1 percent of the country’s inaugural 20-year note. The Australian Office of Financial Management’s last two syndicated offerings of bonds each attracted less than 30 percent interest from foreigners.

The surge in demand for the most recent offering stands in contrast to a broader decline in offshore holdings of Aussie sovereign debt, with AOFM data showing the proportion in the hands of foreigners dropping to just 59 percent in the second quarter, the least since 2009. Many overseas investors are drawn to Aussie debt because it offers the highest yield among sovereigns with top credit ratings from all three major assessors.

“Australian bonds offer a diversified investment opportunity,” said Adam Donaldson, head of debt research at Sydney-based Commonwealth Bank of Australia. “Australia is a very different economy to those other nations that issue 30-year bonds, but we do have deep and liquid bond and currency markets. That combination of diversification and liquidity is very popular for offshore investors. ”

For a Gadfly column on the 30-year bond, click here.

Australia’s sale of March 2047 notes attracted A$13.8 billion of bids and was priced to yield 3.27 percent, the AOFM said. That compares with a 30-year rate of 2.47 percent in the U.S. as of 3 p.m. on Thursday in Sydney, while similar Japanese notes yielded 0.495 percent in Japan and German securities were at 0.70 percent.

The offering follows a rebound in the yield premium that Australian debt offers over securities from the U.S. and elsewhere. The spread between Australian and U.S. 10-year notes on Wednesday climbed to a three-month high of 53 basis points. The gap was at 50 basis points on Thursday.

“The supply from the 30-year has weighed on the market and the 10-year notes as the deal was priced,” said Peter Jolly, the global head of markets research at National Australia Bank Ltd. in Sydney. “While the market overall appears to have digested the supply pretty well, some weakness has seeped in. Yields have also generally been on a weaker bias and so momentum has generally not been positive for bonds.”

A stabilization of the local currency may also have helped assuage investor concerns. While the Aussie dollar fell as low as 68.27 U.S. cents in January following three-straight annual declines, it’s held in a range of 73 to 78 cents over the past three months, and was at 75.35 on Thursday.

“Some of the previous investor caution about a falling Aussie dollar has faded,” said CBA’s Donaldson. “That’s encouraging more buyers into the market.”

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