Aust debt “low by world standards”
Australia’s low debt, by world standards, is encouraging foreigners to buy the majority of commonwealth government bonds, a senior Reserve Bank official says.
Guy Debelle, a central bank assistant governor, says Australia’s AAA credit rating has also boosted the popularity of Commonwealth government securities (CGS) among overseas investors since the global financial crisis.
Part of the attraction is Australia’s low debt levels, as a proportion of gross domestic product, compared to other nations.
“The stock of debt on issue remains considerably less as a share of GDP than nearly all other jurisdictions,” Debelle told a capital markets summit in Sydney on Monday.
“The vast majority of the post-crisis CGS issuance has been purchased by non-residents attracted to the Australian government’s AAA credit rating and favourable level of yields relative to other highly-rated sovereign issuers.”
Shorter-dated yields have fallen, despite an increasing supply of Australian government bonds, because investors are increasingly attracted to haven assets.
“Yields are being held down by a shortage of risk-free assets as demand for these assets has increased,” Debelle said.
Three-year yields fell below two per cent in January, and are now trading at 1.885 per cent.
They hit a record low of 1.77 per cent in February.
Stay informed, daily
The Reserve Bank of Australia cut the cash rate to a record low of 2.25 per cent in February and expectations of more rate cuts have helped keep bond yields low.
“The February reduction in the cash rate target and associated repricing of market expectations for future monetary policy have contributed to a decline in yields,” Debelle said.
Longer-dated bonds are more closely linked with international factors, and often follow the direction of US Treasury bonds, which also now have low yields.
