Detailed Report: Australian Debt Market Overview and Analysis

This report provides a comprehensive overview of the Australian debt market, examining the current state of the market, including Australian corporate bonds, Australian Commonwealth government bonds, and the drivers of bond issuance. It delves into the risks associated with Australian government bonds and offers a comparative analysis to inform investment strategies. The report highlights the growth of the Australian corporate bond market, the role of Commonwealth government bonds, and the influence of international and domestic factors on bond yields. It also discusses the risks associated with these bonds and compares Australian government bonds with other investment options. The conclusion summarizes the key findings, including the Reserve Bank of Australia's unique path compared to the US Federal Reserve and the impact on bond yields. The report utilizes various online and journal resources to support its analysis.

DEBT MARKET
REPORT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Current state of Australian bond market.....................................................................................3
Australian corporate bond...........................................................................................................3
Australian Commonwealth government bond............................................................................4
Drivers of issuance of Australian Bond Market..........................................................................5
Risk related to Australian government bonds.............................................................................5
Prioritize among two market with context of investment strategy.............................................6
Summarise of Australian market {two markets}........................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
The debt market which consists of various instruments of debt are traded are also known
as bond market. Debt instruments are known as assets which have huge requirement of payment
which is fixed to specific holders generally along with interest. It is a financial market in which
new debts are issued to various participants and as it is also known as primary. Generally, it is in
form of bond. The present report includes brief discussion about current state of Australian bond
market. In the same series, it is articulating various instruments.
Current state of Australian bond market
Australia's bond market is very large as compared to government bond which is directly
impacting debt of low public. It could be classified in four major categories i.e. Australian
financial institutions, corporate, long dated asset backed securities and Australian dollar bonds
which are denominated and issued in context of non-residents which are considered as Kangaroo
bonds. Generally, all corporate bonds have a specific credit rating in context of its agencies
which have properly maintained their specific credit raties during global financial crisis (Dalton,
2017). On contrary to global experience, it had specified credit rating to limited number which
has downgraded or performed default in Australian bond market from many years. The growing
market of Australia has widened its various opportunities which have been set for several
investors of wholesale perspective but its proper access is directly limited to investors on less
prospective. So, in the same series, Australian common wealth and state government bonds could
be purchased through retail investors as it is directly concerned from authorities of government
funding and corporate bonds which are traded in minimum amount of $500000. The bond
service of National Australian Bond, as its access had been given on basis of opportunity for
investing in direct corporate bond on selective aspect (NAB Access bond service, 2018).
Australian corporate bond
Australian corporate bond market is growing more than 40% from year 2010 as in the
present scenario, it has reach to outstanding of $1 trillion Australian corporate bonds. It should
be justified from two third of its size in context of stock market of Australia and still various
corporate bonds were not capable to gain perfect attention as on option of investment in
Australia (Australia: bonds, 2004). By observing its past, various corporate bonds have been
issued through companies which are largely rated in Australia and purchased in context of

investors which are institutional and overseas. There is presence of various new modifications
that have been done in corporate bond market of Australia and it has enabled proper access to its
capital market. There is high demand in context of investments of corporate bond along with
non-institutional and private investors of corporate.
Australian Commonwealth government bond
The bonds which are highly secured in context of products of investment are considered
as Australian government bonds. The particular return has been set as a benchmark with
perspective of whole market (Ariff, 2018). Along with this, specific kinds of bonds are used for
lending money to government and they have agreed for proper rate of interest at specific amount
of time. Generally, the interest would be paid by government along with principal and return at
maturity. So, in the same series, common wealth of Australia had directly issued bonds which are
referred as securities in context of commonwealth government. There is specific form of bond
which is available for trading in context of Australian Stock Exchange. Generally, these specific
investments are paid to investors along with cash flow which is forecast-able on particular date
along with maturity date which had been specified.
The commonwealth government securities are directly listed as Exchange Traded
Treasury Indexed Bonds and Exchange Traded Treasury Bond on ASX. The Exchange traded
treasury bonds are considered as debt securities which have presence of face value which is
fixed. In the same series, it has been classified that similar annual rate of interest has been laid on
security's life which must be payable on every six months (Exchange-traded Australian
Government Bonds, 2018). The exchange traded treasury Indexed bonds have presence of face
value which has various adjustments with alterations in Consumer Price Index. There is presence
of payment of interest on quarterly aspect along with fixed rate which is altered on face value. It
could be justified as interest amount which has been received as it would vary from single
quarter to another one. There is presence of different name of exchange traded treasury bonds
and indexed bonds as:
Exchange traded Australian government bonds
Commonwealth Government security depository interest
Australian Government bonds

Drivers of issuance of Australian Bond Market
The yield with context of Australian government bond had been directly influenced with
several international factors along with minor domestic influences. In the short term perspective,
there was decrease in cash rate target as it is directly linked with repricing of expectations of
market on basis of future monetary policy it had huge contribution for achieving decline in its
yields. The long term perspective had been described as tendency with yields with context of
following various developments related to global market. It had been justified that there is
presence of strong correlation in yield of US Government and long term Australian bonds which
is considered as very evident. The spread among 10 year yield has considered it on narrow
perspective which is declining from specified 100 basis points and in middle of last year with
respect to low of 40 basis points. There had been proper observance of net outcome of these
particular developments on Australian 10 year Commonwealth Government securities which got
fall on lowest level of 2.28 percent.
All these particular decline in yield of CGS in many years along with similar aspect with
context of government bonds which have incurred along with raise in supply of CGS and
problems. On its contrary, stock of debt with context of issue remains less along with GDP share
which is near to jurisdictions. There is presence of majority of post crisis issuance of CGS which
had been purchased from various non residents as they were attracted to Australian
Government's AAA credit rating as it is not against to yield level linked to non residents with
context of different issuers of sovereign which are highly rated. In the present scenario there was
decline in its share due to buying which had not kept pace along with present issuance.
Risk related to Australian government bonds
The Australian Government bonds is subject with context of market value if they are sold
before maturity. Market value signifies price should be paid as in favour of people (Pope, J. and
et. al. 2018). The market price would be varying from time to time as it is totally dependent on
economy and rate of interests. In the same series, Exchange traded treasury bonds get impact
through inflation but on its contrary Exchange traded Treasure Indexed bonds does not get any
impact. It is considered as low risk for purchasing Australian Government bonds with context of
retail investors as they are familiarised with these specific bonds. These particular investments
give an income stream which is steady along with diversification in portfolio of investment.

Prioritize among two market with context of investment strategy
Australian Government bonds are more secured as principal payment and interest had
been paid through Australian government. In the same series it had presence of stable and regular
income along with quarterly or semi annual payment of interest of coupons. In the context of
ease or liquid investment, it is very easy to sell or buy through Australian Securities exchange.
With the context of diversification, these offer a proper way for diversifying its portfolio of
investments. Its factor of maturity has presence of wide range (Grjebine, Szczerbowicz, &
Tripier, 2018).
Government bond yields
Australia Bond 2 year
yield
1.75 99.29 2.07%
Australia Bond 5 year
yield
5.5 114.3 2.27%
Australia Bond 10
year yield
2.25 96.34 2.67%
Australia Bond 15
year yield
4.5 119.86 2.83%

Illustration 1: Australian 10Y Government bond
(Source: Bond Market, 2018)
Australian 10Y yield had raised from 0% from 2.67 as it could be justified from its past
that it had reached to 16.50 which is highest in year 1982 and on low aspect as 1.83 in 2016.
Summarise of Australian market {two markets}
From the above report it could be concluded that there is absence of new challenges
which are viewed that Reserve Bank of Australia is present on unique path from US FED where
rates are increased. In the year 2018 December pricing with context of RBA there is movement
of cash rate from 4 bps which is lower with 1.62% to 1.58%. The 10 year Australian bond had
completed its 21 bps which is lower from yield at 2.60% which is impacting growth in price. As
it always remains below from government bond yield of US. There is decrement of yield of 3
year government bonds through 3 bps to 2.05%.

REFERENCES
Books and Journals
Ariff, M. (2018). A new form of global asset-backed debt market through sukuk. In Islamic
Social Finance (pp. 111-126). Routledge.
Dalton, C. (2017). The Australian securitisation market 10 years on from'the global financial
crisis'. JASSA. (2). 22.
Grjebine, T., Szczerbowicz, U., & Tripier, F. (2018). Corporate debt structure and economic
recoveries. European Economic Review. 101. 77-100.
Pope, J. and et. al. (2018). Are current effectiveness criteria fit for purpose? Using a controversial
strategic assessment as a test case. Environmental Impact Assessment Review. 70. 34-44.
ONLINE
Australia: bonds. 2004. [Online]. Available through :<http://cbonds.com/countries/Australia-
bond>.
Bond Market. 2018. [Online]. Available through :<https://xtbs.com.au/insights/bond-markets-
month-march-2018/>
Exchange-traded Australian Government Bonds. 2018. [Online]. Available through
:<https://www.asx.com.au/products/bonds/exchange-traded-agbs.htm>.
NAB Access bond service. 2018. [Online]. Available
through :<https://www.nab.com.au/personal/banking/private-banking/global-markets-
access/nab-access-bond-service>
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