Kangaroo bonds are Australian dollar-denominated bonds issued by non-resident entities in Australia. It is an important market segment for Australia as it gives a strong endorsement of our bond market that local borrowers are able to take advantage of through their own issuing. They are the third largest segment of the bond market after government and semi-government bonds. Kangaroo bonds enable foreign-domiciled issuers to diversify their funding bases into a liquid currency such as the Australian dollar while accessing a relatively-deep bond market. Kangaroo bond issuers are also acting as indirect counter-parties for Australian corporations looking to convert funds raised offshore back into Australian dollars.
Most Kangaroo issuers raise funds in $A and then swap the funds back into their home currency. A major reason why this is feasible from a cost perspective is that Australia has a surplus of businesses who wish to swap foreign currencies back into $A, typically as a result of borrowing offshore to finance domestic projects. This creates an opportunity for someone willing to take the other side of the transaction; Kangaroo bond issuers can sell their $A and swap the funds back into their home currency quickly and cheaply. Even with costs this means the issuers of Kangaroo bonds are often borrowing funds at a cheaper rate than they could at home.
Each quarter the Reserve Bank of Australia publishes its quarterly Bulletin. It an excellent update in financial markets with research papers and thought leadership pieces on the state of markets. The latest Bulletin has been released and contains and excellent overview on the Kangaroo bond market including the size, structure and key features of the market.
If you have heard the term “Kangaroo bonds” but perhaps weren’t sure as to what they were, why they are issued or and how the market operates, “The Kangaroo Bond Market” is recommended reading.