Goldman Sachs: Long End Australian Rates Look Attractive On A Relative Basis

Goldman Sachs note that "long end Australian rates look attractive on a relative basis. The Australia Office of Financial Management's issuance estimates for FY20-21 show a planned increase in net bond supply of A$190bn, and in a speech this week, its CEO emphasized the benefits of targeting a longer average maturity of issuance. While any extension in WAM could lead to underperformance at the long end, we think the recent strong bid for AGBs, particularly from overseas investors, is likely to continue. For the JPY investor, FX-hedged AGBs offer substantially better yield pick-up than OATs or USTs (this holds for unhedged yields as well). The pick-up has widened since May, when Japanese accounts added almost Y1tn in Australian long-term debt over a 2-month period according to BoP data. We therefore expect the continued bid for AGBs to limit the move higher in long-end Australian rates over the near-term."