Australia’s sovereign bond market is facing a significant decline in demand, with investor concerns rising over the nation’s escalating debt issuance. The spread between 10-year interest-rate swaps and equivalent bond futures dropped to a record low of negative 14.75 basis points this week, according to data compiled by Bloomberg dating back to 1998. This spread is often viewed as an indicator of bond demand, with swaps and bond futures typically moving in tandem unless concerns about bond supply arise.
The shift in market sentiment comes as the Australian Office of Financial Management announced plans to issue approximately A$150 billion ($94.4 billion) in government bonds over the next 12 months, ending June 2026. This is a sharp increase from the revised A$100 billion projection for the current fiscal year.
This higher bond supply is contributing to downward pressure on spreads, according to Ken Crompton, head of rates strategy at National Australia Bank Ltd. “The combination of flows and higher issuance points to spreads remaining tight,” Crompton stated, noting that the swap spread curve is expected to remain inverted due to these factors.
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