News headlines on Australia’s fixed income market tend to focus on how specific issues, such as how the health of the country’s economy and the Reserve Bank of Australia (RBA) policy, determine the direction of the country’s government bond yields.
In our view, these domestic issues are critical. We think the RBA will likely continue to take a more cautious approach to interest-rate hikes because the country’s households are struggling.
However, investors unfamiliar with the Australian fixed income market may be surprised to hear the drivers of performance are as much global as they are local. For example, the direction of US Treasury yields tends to drive Australian longer-term government bond yields to a large degree. In addition, global issuers make up a substantial proportion of the Australian corporate bond market.
Here, we highlight three things for investors to think about when it comes to viewing the Australian fixed income market through a global lens.
Australian Corporate Credit Market Is a Bit of a Misnomer
The Australian corporate credit market generally moves closely in sync with global peers. The proportion of non-Australian borrowers in the Bloomberg AusBond Credit 0+Yr Index is approximately 50 per cent, higher when compared with other developed market indices. Large global names, such as Verizon and Apple, have raised money in the Australian dollar corporate bond market.
The market is...