SYDNEY: Borrowers are queuing up to issue Australian-dollar bonds in record amounts this year as they take advantage of robust demand from yield-hungry investors in Asia who are undeterred by speculation the Reserve Bank of Australia could soon cut interest rates.
So far this month, international organisations and foreign government agencies, which tend to be active borrowers in January, have raised around A$6 billion ($4.7 billion) of bonds in Australia, the largest amount ever sold at this time, debt consultant ADCM Services said.
Driving this vigorous issuance are Asian buyers who have traditionally favoured Europe and North America as offshore investment destinations.
Bankers have recently noticed a growing demand for Australian bonds from central banks all the way to wealthy individuals.
"Between 40 percent and 60 percent of typical deals are placed in Asia," said Oliver Holt, head of Nomura's Australian fixed income syndicate.
"The portion going offshore has increased over recent times as accounts continue to search for yield globally, and liquidity in the Australian dollar market grows."
Nearly half of the African Development Bank's five-year A$300 million issue sold last week was placed in Asia, while allocations to Asia are even greater for the scarcer 10-year bond issues favoured by Japanese life insurance companies.
With returns of around 2.7 percent for five-year AAA-rated issues, they compare with yields of less than 1 percent offered by Spain's euro-denominated debt rated some seven notches below.
Riskier borrowers too have seen demand from Asian buyers, particularly private banks managing the assets of a growing number of wealthy investors in the region.
"Issuers are increasingly adding an Asian leg to their primary deal roadshows and see this new set of investors as integral to marketing new transactions," said Brad Scott, head of corporate bond origination at National Australia Bank.
He said the hot spots are Hong Kong, Singapore and sometimes Japan, as firms are keen to diversify their debt investor base. Underpinning Australia's appeal is a transparent legal framework and proximity to Asia.
A Singapore-based private wealth banker, who asked not to be named, sees steady demand from those already exposed to the Aussie dollar through direct property, local business or bond investments.
However, he saw a growing risk that highly speculative buyers might be put off should the Reserve Bank of Australia cut its already record low cash rate of 2.5 percent, as many in the markets are wagering.
For now, he said the most popular Australian dollar investments are bonds issued by offshore banks, such as Goldman Sachs, Morgan Stanley and those from the Middle East.
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