To pay out $42bn, it's got to be bonds

Bonds, to fund the impending budget shortfall, are expected to go on sale as early as tomorrow through the Australian Office of Financial Management.

Even though the economic stimulus package is yet to receive parliamentary approval, Deutsche Bank equity strategist Tony Brennan said $950 handouts would start flowing through to retailers as soon as the cheques were sent out in March or April.

Gaming companies Tatts Group, Tabcorp and Crown Limited were also likely beneficiaries, said JPMorgan gaming analyst Stuart Jackson, noting the effect of the Government's initial $10.4 billion stimulus package announced in October.

"With the earlier announced handout ... gaming expenditure in Victoria was up 13.4 per cent during the month of December," he said.

Insulation manufacturer CSR is also expected to benefit from a push to install insulation batts in millions of houses, as is Fletcher Building.

Downer EDI, Transfield Services, Leighton Holdings, Lend Lease and United Group were also likely to gain from the package, JPMorgan developers and contractors analyst Alastair Reid said.

Yesterday, the Australian Office of Financial Management said it would issue between $22billion and $24billion in Treasury bonds within the next five months, starting tomorrow. It will also issue Treasury notes to cover short-term financing requirements, consulting with money market dealers and bond dealers to work out which maturities are in highest demand.

Chief executive Neil Hyden said he expected strong demand for the Treasury bonds, which will be sold bi-weekly in $500 million to $700million lots.

Although the Government did not need extra funds over recent years, the office has continued to sell Treasury bonds just to keep the market open. "Over the last year we increased the volume of issuance because demand was so strong," Mr Hyden said.

HSBC Australia chief economist John Edwards said even though Australia's economic growth was in peril, the question was whether the economy would spiral into a recession despite the Government's historic injection of funds.

"I don't think recession is at all a foregone conclusion," he said.