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Foreign appetite for Aussie bonds starts to wane

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March 10, 2019 by admin

Foreign holdings of Australian government debt have slipped from record highs, sparking claims the overseas appetite for Aussie dollar assets may be waning.
Nanjing Night Net

Australia has become a haven for global capital in recent months, with foreign investors snapping up government bonds in record amounts, putting a key support under the dollar.

However, an analysis of today’s balance of payment statistics by JP Morgan has found the increase in foreign holdings of government bonds during June was the smallest in three years.

Overseas investors added $5.1 billion worth of government bonds to their portfolios in the June quarter, it found, which was the smallest increase since June 2009 – and not enough to keep pace with the issuance of debt.

Because of this slowing, the share of the $245 billion in government debt that is held by foreigners has dipped from its record high of 79 per cent in the March quarter, to 77.5 per cent.

JP Morgan interest rates strategist Sally Auld said it is too early to say the trend would last, but it appears the rush into Aussie bonds from central banks and sovereign wealth funds is slowing.

“While one quarter is not enough to define a trend, we would argue that this is broadly consistent with the idea that much of the new reserve allocation by offshore central banks and sovereign wealth funds into $A fixed income is now in the past,” she said in a note.

If there is indeed less foreign interest in buying government debt, Ms Auld said the Aussie dollar may lose some of its resilience against the US dollar.

However, she noted that Australia was still one of a small group of AAA-rated economies with a stable outlook, and banks were also likely to seek out bonds as a relatively safe store of capital.

This story Administrator ready to work first appeared on Nanjing Night Net.


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