Australia’s Long-Bond Sale Sees Solid Demand Amid Global Selloff

2023-10-17 15:30

Investors offered to buy more than three times the amount of Australia’s new 31-year bonds that were sold,

Investors offered to buy more than three times the amount of Australia’s new 31-year bonds that were sold, underscoring how the nation’s debt remained attractive during a period of elevated volatility in global debt markets.

The 4.75% June 2054 bond priced with a yield of 4.93%, according to the Australian Office for Financial Management. Investors offered a total of A$28.6 billion of bids in the bank-arranged sale, the AOFM said.

Australia, whose government budget returned to surplus recently for the first time in 15 years, has seen its sovereign debt outperform many peers this year. Globally investors have been wary of longer-dated bond sales due to concerns that central banks will keep policy rates higher for longer. The poor reception of a 30-year US bond auction on Oct. 12 also highlighted skittishness about an increasing supply of Treasuries.

“Australia does not have the same deficit issues as the US and now that this well-telegraphed supply is out of the way, we expect Aussie bonds to outperform the US,” said James Wilson, a senior portfolio manager at Jamieson Coote Bonds Pty in Melbourne. The firm bought some of the securities, he said.

Elsewhere, Japanese bond futures fell Tuesday after a sale of 20-year notes in Tokyo saw a cut-off price lower than expected.

The yield on Australia’s new security came in at 37 basis points above the bid yield on 10-year government bond futures around the time of the sale. The AOFM had set a range of 37 to 43 basis points for the issue.

While demand was smaller than at the April 2023 offering of a new 11-year note — when investors bid for 4.4 times the A$14 billion issued — it was the strongest interest seen for a bank-arranged sale of notes maturing in 20 years or more. The most recent such offering was in July 2020, when bids for the June 2051 security came in at 2.5 times the A$15 billion sold.

Australian government bonds are up 0.6% through Monday for 2023, compared with a 2.1% loss for US Treasuries.

“We would expect the bond to continue to see demand with the entry in bond indices at the end of the month as well as when it becomes the ‘on-the-run’ 30-year, which will bring central bank demand,” Wilson said of Tuesday’s sale.