The prospect of an Australian 30 year bond has emerged again. After an investor update held in Hong Kong, Australian Office of Financial Management chief Rob Nicholl, was reported in the media to have said a 30 year bond would likely be issued by June next year. When YieldReport checked with the AOFM about the accuracy of the report, the agency was a little coy but did confirm that lengthening the yield curve out to 30 years was always under “active consideration”.
It has been suggested to YieldReport that several life offices and superannuation funds have spoken with the AOFM to offer support if such an issue were to eventuate. Given the investment mandates of many of these funds and those of foreign buyers such as from Japan, finding support would seem to us to be a given.
From 2012 onwards, the AOFM has been lengthening the average maturity of its debt and given the state of sovereign yields it is not a surprise that issuers would think of locking in a historically low financing rate for an extended period of time. Currently the longest dated ACGB on issue is the June 2039 series.
The introduction of a 30 year bond was flagged by the AOFM chief in a May 2015 Australian Business Economists speech where he said the introduction of a 25 or 30 year line was likely in the “coming year”. Just over a year later, nothing has eventuated.
Deutsche Bank strategist David Plank said the extension of the Australian yield curve would have some impact. “Indeed, the recent bounce in the 10Y/20Y bond slope may have been in anticipation of maturity extension by the AOFM.” However, he expects when such a bond issued, the effect on the yield curve will be only “modest”.