Westpac: AU Bonds’ Reward-For-Risk Remain Relatively Attractive

Westpac note that outside of FX-hedged Japanese investor, "there are other global investors that continue to be invested in AU bonds. They remain attracted to the AAA rating, low debt-GDP and excellent policy and health response to the crisis. We look at the highest rated global sovereigns versus their 10yr nominal yields. While this is a very simplistic reference point it does indicate that despite historically low absolute yield levels, AU continues to provide some value on a relative basis, yielding only marginally less than Singapore in the AAA complex and is attractive in comparison to some significantly lower rated countries. That is not a significantly different picture vs. what has been the case for some time. However, when comparing the average yield for peripheral Europe (Portugal, Ireland, Italy, Spain) we can see that AU 10yr bonds are now yielding less than this average for the first time in 6 years. That might limit some investor interest near term, but to the extent that the Europe periphery has been performing, it should also be supportive of AU within the $-bloc. This is one of the reasons why we remain confident of good demand in this week's new ACGB Nov-2031 syndication."