Australian 10 year bonds yield more than the equivalent maturity of US Treasury bonds. The extra yield is the compensation investor’s demand for the added risk of investing in Australian bonds in Australian dollars. Just recently the spread, as it is commonly known, touched a multi-year low of 25bps suggesting the risk of lending to the Australian Government was only worth only 0.25% per annum more than the risk of lending to the US government. Such a small difference had led some commentators to question the value of Australian bonds and whether they may be overpriced, leading to offshore investors losing interest.
Offshore investors have been losing interest but not just recently. Below is a chart of non-resident holdings in treasury bonds and notes. Readers will see a peak in foreign holdings in June 2012, followed by a decline through to 2016. Interestingly, as the chart below shows, the falling level of overseas ownership has coincided with the rising debt levels of Australia.
