Asia demand for $A bonds here to stay

Rapidly growing Asian demand for Australian bonds is around for the long term, according to Telstra group treasurer Guy Wylie.

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Speaking at ANZ’s 2018 Debt Conference, Wylie said the ongoing high demand was not just important for the local market but also “super cool” – a reflection on just how much the market had changed from just two or three years ago.

"We think [Asian demand is] definitely there to stay.” –Guy Wylie, Telstra

“We think it’s definitely there to stay,” he said. “There’s a lot of liquidly coming out of that region. When you mix it with the $A down here, it feels really good at the moment.”

The year 2017 was a big one for $A bond issuance, according to ANZ Research, which swelled 25 per cent to a total of $A145 billion. Increased interest in longer duration issues saw 30 per cent of that demand come out of Asia.

“Last year was a record year,” ANZ Co-Head of Capital Markets Paul White said. “It’s been a very strong trend of liquidity over the last 12 months.”

Asian Investor demand came out of Japan, Korea, Taiwan, Hong Kong, Malaysia, China and Singapore, with particular interest from insurance funds.

Stuart Gray, ‎Head of Credit Research at Schroders Investment Management, said from an investor perspective the demand growth was a good thing.

“It’s good for the market,” he said. “When the money first started coming through we were told it was based on the $A. Then the $A dropped and the money didn’t go away. So it’s obviously fulfilling their requirements.

“As long as that continues to go on I think we’ll see the money stay in Australia.”

The theme of continued demand for duration longevity was high on the agenda at the conference.

Gray said the Australian market had only recently grown from a three-year to five-year bond market “at best” to a five-to-seven year market.

“So to [now] be thought of as a seven-to-ten year market, which is what has developed… is a really positive development for the market.”

The insights were delivered on a panel featuring Wylie, White, Gray, Citipower Treasurer Diane Crossley and Australian Super Senior Investment Manager Roger Knott.

Shane White is senior production editor at bluenotes

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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