A planned 30-year bond issue by the Australian government is expected to be well received, fund managers and dealers say, even as foreign investor appetite for the triple A-rated sovereign debt has recently waned.
Robert Nicholl, chief executive officer of government funding agency the Australian Office of Financial Management (AOFM), confirmed plans this week to sell its first 30-year benchmark bond in the week of October 10.
Reuters first reported the expected bond issue in August.
“I think the AOFM would be happy with a A$1 billion issue,” said David Choi, a portfolio manager at Aberdeen Asset Management which has around A$10 billion of funds under management.
Choi, whose company manages around A$1.5 billion of Australian sovereign debt including long-dated bonds, welcomed the news to lengthen the yield curve.
“We will definitely consider buying it. It depends on the price,” he said.
Australia, one of only a dozen countries rated triple-A by S&P and Moody’s, has A$435 billion ($325 billion) of bonds on issue. Around 60 percent of that debt is in the hands of international holders, but that is down from a peak of around 80 percent in mid-2012.
Choi said the decline in the share of foreign holdings would be of some concern to the AOFM ahead of the sale.
The reduction in the premium offered by 10-year Australian Commonwealth Government Bonds (ACGBs) over US Treasuries to just 44 basis points, from 85 basis points earlier this year, could also undermine appetite.
Still, with two-year Australian debt paying around 1.6 percent, it is relatively high yielding compared with near-zero returns in most of the rich world and negative rates of Germany and Japan.
“Direct feedback from our Japanese clients indicates the new offer will have significant interest in that maturity,” said Andrew Ticehurst, rates strategist at Nomura in Sydney.
Japan is among the top holders of Australian debt.
“Australia’s long end offers a good combination of attractive yield plus high credit ratings,” he said.
Dealers expect the AOFM to appoint a group of joint lead managers later this month.
($1 = 1.3390 Australian dollars)