(Bloomberg) — Australia’s inflation-adjusted bond yields jumped to the highest in over a decade as the government announced plans to ramp up debt issuance in an election year to alleviate cost-of-living pressure on voters.
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The yield on the nation’s inflation-indexed 10-year government bonds touched 2.38% this week, the highest since 2011, according to Bloomberg-compiled data. The so-called real yield has risen almost 30 basis points this quarter, after a 39-basis-point jump in the previous three months.
“It might be a reaction to the politics,” said Philip Brown, head of research at FIIG Securities Ltd. in Melbourne. “Every time inflation rises, the government does something to mechanically lower CPI. That doesn’t help my bond. I’d need yield to compensate me for that.”
The government unveiled tax cuts and other sweeteners this week, ahead of the May 3 elections, to soothe voters’ cost-of-living concerns and help win Prime Minister Anthony Albanese a second term in office. Authorities plan to fund these initiatives via a 50% increase in debt issuance in the fiscal year starting July.
The additional debt supply has cheapened long-dated bonds both against shorter tenors and swaps. The yield spread between three- and 10-year notes widened to 71 basis points on Friday, the most since March 2022, according to data compiled by Bloomberg. The nation’s sovereign bond returns were 0.6% so far this quarter, less than the 1.9% gain in global peers.
“The Australian curve has steepened notably in recent weeks,” said Martin Whetton, head of financial markets strategy at Westpac Banking Corp. “The market had placed a supply-driven expectation of ACGB issuance that would drive a steeper curve,” he said, referring to Australia Commonwealth Government bonds.
The issuance projections may have lagged behind some estimates, which may lead some investors to fade the cheapness of the 10-year bonds, he said.
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