Foreign demand for bonds forecast to remain strong

Australian government bonds remain attractive to international investors despite recent interest rate cuts, says Fidelity Worldwide Investment, which manages $US240 billion in assets.

International investors have flocked to relatively high-yielding Australian government bonds in the past few years, after US and eurozone countries slashed their interest rates to historical lows.

Fidelity fixed-income investment chief Andrew Wells said this trend was likely to continue despite the recent rate cuts by the Reserve Bank.

"If you are sitting in Australia, you probably think international investors will be less interested [after the rate cuts]," he said. "However, if you look from overseas, Australia is still a very, very attractive place to invest."

Mr Wells said 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".

He said conditions in Europe were still very bad.

"In Europe, the big problems are so big, basically they will have low interests for a long period of time," Mr Wells said.