Tags: Australian | Debt | safe | Haven

WSJ: Australian Debt Viewed as Safe-Haven, Alternative to Risky European Bonds

Wednesday, 15 Aug 2012 09:25 AM

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Australian government debt has joined the ranks of the U.S. Treasury and the German Bund as a safe-haven asset class, a place where investors seek refuge when markets roil elsewhere.

But unlike U.S. government debt, which produces paltry returns that often don't exceed inflation rates, Australian debt is shining.

Australian 10-year notes have returned 17 percent this year, The Wall Street Journal reported, citing UBS data.

Editor's Note: Google Banned This Video But You Can Watch it Here

In contrast, U.S. Treasury notes are returning around 2 percent.

Investors like the AAA-rated country thanks to healthy tax revenues, a booming mining sector and restrained government spending.

The country's debt-to-gross domestic product ratio will peak at 10 percent this year compared with an average 93 percent debt-to-GDP forecast for developed countries by 2016.

"You can comfortably call places like Australia relatively safe havens," said Steve Miller, head of Australia fixed income at BlackRock Inc., according to The Journal.

Australia, however, depends heavily on Chinese demand for its products and services, and a cooling Chinese economy could dampen demand for the country's debt.

And while the country enjoys a buffer zone from the European debt crisis today, escalating problems in Greece or Spain could cool the global economy, which would echo in the land Down Under.

Meanwhile, a German court is mulling the constitutionality of the country's ability to bail out its neighbors, while U.S. elections are fast approaching, generating uncertainty in global markets.

"The problem is that optimism can disappear quickly, and we're coming into a dangerous time of the year," said William Larkin, who manages $500 million in fixed-income assets at Cabot Money Management in Salem, Mass., adding the rally in Australian bond markets "could evaporate very quickly."

The Reserve Bank of Australia upped the country's GDP growth forecast for this year, recently hiking the figure to 3.5 percent from a 3 percent forecast made in May.

The boom in mining and energy-related spending should peak some time in 2013 or 2014 before correcting, the RBA predicts.

"That peak is expected to occur somewhat earlier than previously thought," the RBA said in its quarterly outlook on monetary policy.

"Some resource companies have adopted a more cautious approach to investment opportunities currently under consideration ... given the more uncertain global outlook."

Editor's Note:
Google Banned This Video But You Can Watch it Here



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