Australia keeps its global appeal
Australian government bonds still remain attractive to international investors despite recent Reserve Bank interest cuts, according to the international fund giant, Fidelity Worldwide Investment.
International investors, including many central banks, have flocked to relatively high-yielding Australian government bonds in the past few years, as the US and eurozone countries slashed their interest rates to historic lows.
Andrew Wells, fixed income investment chief for Fidelity, said this trend was likely to continue despite the recent rate cuts.
"If you are sitting in Australia, you probably think international investors will be less interested [after the rate cuts]," Mr Wells said. "However, if you look from overseas, Australia is still a very, very attractive place to invest."
Mr Wells told BusinessDay that many clients were coming out of Italian bonds and "buying Australian, Norwegian and Swiss and all these other high quality bonds, because they don't like the volatility in Europe."
Mr Wells, who is in charge of fixed income and real estate investment for the fund giant said conditions in Europe were still very bad. Southern European countries such as Spain, which has an unemployment rate of 27 per cent, were still teetering on the edge.
"In Europe, the big problems are so big, basically they will have low interest rates for a long period of time," he said.
Australian government bonds are one of the few remaining triple-A rated bonds from the developed markets. Mr Wells said the Australian bond market also benefited from investors shifting from the issuance-weighted benchmark - dominated by troubled countries such as Italy and Spain - to the GDP-weighted bond benchmark, dominated by countries with stronger economies.
While Australian bonds make up a small share of the issuance-weighted index, they are a much bigger component of the GDP-weighted index.
"Most investors are saying, hang on a moment, why should I lend money to someone who needs to borrow a lot?" he said. "Actually, you want to lend to people who don't want to borrow because they are much more likely to pay it back."