Pimco Sees Record A$20 Billion Demand for Australian Bond Sale

(Bloomberg) -- Australia is generating unprecedented demand for its syndicated sale of November 2028 bonds, according to Pacific Investment Management Co.

Investors are shrugging off concerns about Australia’s capacity to keep its top credit score as the nation’s debt looks attractive relative to U.S. Treasuries, Robert Mead, managing director at Pimco in Sydney, said in an interview with Bloomberg Television Wednesday.

“If you look at the syndication of the 2028 bond that’s happening today, there’s an incredible amount of demand , over A$20 billion ($15.4 billion) of demand,” Mead said. “That suggests that the market itself is not too worried about the loss of a AAA” credit score.

Australia looks to be on the verge of its third record bond offering within six months. The level of demand Mead cited would exceed the A$15.3 billion of bids that Australia received last month when it sold an unprecedented A$9.3 billion of December 2021 securities.

The government has been ramping up issuance as it struggles to rein in its budget deficit and seeks to finance a debt pile that’s expected to top A$600 billion in 2020. Investors have been clamoring for Aussie debt at auctions and syndicated offerings even as the prospect of tighter U.S. monetary policy is helping to drive a slump in global bond markets.

“You’ve got a fiscal policy under Trump that’s likely to be growth generative and we’ve got a federal government here that’s much more concerned about balancing the budget and keeping the AAA,” Mead said. “So near term we think Aussie bonds look pretty attractive. We would prefer to have our positions in Australia, versus the U.S., where rates are likely to leak a little higher.”

While ratings companies refrained from taking action on Australia following December’s mid-year budget update, S&P Global Ratings has had a negative outlook on the country since July. Treasurer Scott Morrison is scheduled to hand down his next fiscal plan in May.

The 2028 bond will have a coupon of 2.75 percent and the transaction is being managed by Australia & New Zealand Banking Group Ltd., Commonwealth Bank of Australia, Deutsche Bank AG and Westpac Banking Corp.

--With assistance from Benjamin Purvis

To contact the reporters on this story: Garfield Reynolds in Sydney at greynolds1@bloomberg.net, Haidi Lun in Hong Kong at hlun1@bloomberg.net.

To contact the editors responsible for this story: Edward Johnson at ejohnson28@bloomberg.net, Benjamin Purvis

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