Aussie bond demand sees record auction

SYDNEY • Australia’s politicians may worry about their nation losing its AAA sovereign-credit rating, but that doesn’t appear to be on investors’ radar screen of concerns — the government sold a record amount at a bond auction yesterday.

The country’s debt agency sold A$3.5 billion (RM11.48 billion) of new bonds maturing in 2022, according to a statement from the Australian Office for Financial Management (AOFM) yesterday.

With a record size, the bid to cover ratio came in below the average, at 3.68 against 4.46 for the year for issues before this sale.

Still, with almost US$13 billion (RM54.86 billion) worth of bids, there’s healthy demand and comes on the back of recent offerings that also generated extraordinarily high appetite.

With a yield premium over US Treasuries, Aussie government debt offers investors both the relative safety of an investment-grade security along with somewhat better returns than the global benchmark.

For the government, it helps keep borrowing costs down despite failures to meet targets toward a fiscal surplus.

At the same time, the demand has supported the Australian dollar, a concern at the central bank with regard to the potential hit to growth and inflation.

“It’s a strong result,” said Mark McKendry, Sydney-based head of Australia rates trading at RBC Capital Markets, adding that he saw good offshore demand for the sale.

Australian debt has been so popular that a single buyer snapped up all A$500 million of a government bond sale in September.

That was the second time in a month that one bidder got everything on offer in an Aussie auction, echoing a spurt of investor hunger in 2013 when two such sales occurred in the space of a week.

The debt sold yesterday is likely to become part of the three-year futures basket by the end of next year.

The yield on Australian three-year bonds was at 2.13%, more than half a percentage point above its June low.

Australia’s Prime Minister Malcolm Turnbull has said the country risks losing its AAA credit rating due to political squabbling that’s stalled spending cuts and stimulus measures.

S&P Global Ratings has warned that continued inaction may see the country lose forfeit its AAA score.

The AOFM received A$12.9 billion of bids in yesterday’s auction, the highest ever for a sale of this length of maturity.

That came from 106 bids, 26 of which were successful, the statement showed. — Bloomberg