Morrison hails success of $13bn commonwealth bond issue

This week’s $13bn bond issue by Canberra proved Australian debt remains an attractive investment

This week’s $13bn monster bond issue by Canberra proved Australian debt remains an attractive investment as local buyers rushed the auction, but some offshore investors sat on the sidelines.

Buyers were keen to take a slice of the three-year issuance, with Prime Minister Scott Morrison welcoming the success after bids cleared $25bn, almost double the value of the bond which will only yield 0.47 per cent.

“This should give Australians a sense of assurance and confidence, the significant financial commitments we have made, we are being successful in raising those funds on markets,” Mr Morrison said.

“We are finding ourselves in a situation where Australia’s bond issuance is being well received (and) that is because of the relative strength and relative positive impression that markets have.”

The Australian Office of Financial Management which handles financing for Canberra has raised more than $28bn since March 20 as it scrambles to fund the huge outlays prescribed to save jobs and business in the coronavirus pandemic.

Commonwealth Bank head of fixed income and FX strategy Martin Whetton said Wednesday’s record-setting bond showed how quickly the government needed to raise money to pay its spending commitments.

“They’re (Canberra) are borrowing about $5bn a week — if you’re doing $5bn per week and you’ve got 2½ months, you’ve got about $50bn to borrow in that time. They’ve got a fair task ahead of them and markets are not always open,” Mr Whetton said.

Onshore buyers edged out international buyers, snapping up 68.1 per cent of the bond, while buyers in Asia — excluding Japan — took the lion’s share of the 31.9 per cent bought by international buyers, according to figures released by AOFM.

Japan, which has been stalwart of Australian government debt issuance for much of the last 30 years, represented only 0.2 per cent of the sale, a huge turnaround from 2016 where they bought 6.2 per cent of a $7.6bn 10-year bond.

Mr Whetton said it was clear Japanese buyers were looking for a better deal elsewhere.

“Once Australian yields went under US yields they lost a lot of interest in our market,” he said.

The bulk of buyers of the bond were banks for balance sheet and trading at 52 per cent. Fund managers picked up 25.3 per cent and hedge funds picked up 17.3 per cent, well up from past interest.

RBC Capital macro rates strategist Robert Thompson said cheap funding made it an attractive investment for hedge funds.

“They’re buying three-year bonds for almost double the yield,” he said. “They’ve got an RBA backstop but they’re getting a decent enough yield to make a return on it.”