Canberra issues first 20-year bond
The Australian Office of Financial Management on Tuesday concluded a new 20-year bond issue, raising $5.9 billion from investors.
The deal is significant because until now the government had only nominal issued bonds with maturity of up to 16 years.
ANZ chief economist Warren Hogan said the size of the issue showed strong demand for government debt from investors, and the deal could help develop the market for long-dated private sector debt, often used to fund infrastructure.
The yield to maturity of 4.86 per cent was a "pretty reasonable" cost of borrowing, he said.
Unlike peers overseas, Australia lacks a market for bonds with a maturity of several decades, which are often used to fund big infrastructure projects. It is hoped that once there is a market for long-dated government paper, private companies will have a benchmark for issuing their own long-dated bonds, which are also likely to be sought by pension funds.
Frequently Asked Questions about this Article…
The new 20-year bond issue by the Australian government is significant because it marks the longest-dated bond ever issued by the government. This move is a key step towards establishing a market to support long-term borrowing for infrastructure projects.
The Australian Office of Financial Management raised $5.9 billion from investors through the new 20-year bond issue.
There is strong demand for government debt from investors because it provides a stable and secure investment option. The size of the 20-year bond issue reflects this demand, as noted by ANZ chief economist Warren Hogan.
The yield to maturity for the new 20-year bond is 4.86 percent, which is considered a 'pretty reasonable' cost of borrowing according to ANZ chief economist Warren Hogan.
The 20-year bond issue could help develop the market for long-dated private sector debt, which is often used to fund infrastructure projects. It provides a benchmark for private companies to issue their own long-dated bonds.
Unlike its peers overseas, Australia has historically lacked a market for bonds with a maturity of several decades. This is partly because such bonds are often used to fund big infrastructure projects, and there hasn't been a strong precedent for them in the Australian market until now.
The new bond issue is likely to be sought by pension funds because long-dated bonds provide a stable and predictable income stream, which is ideal for meeting long-term liabilities.
The Australian Office of Financial Management is responsible for managing the government's debt portfolio, including issuing bonds like the new 20-year bond to raise funds for government projects and initiatives.
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