https://www.afr.com/markets/debt-market ... 415-p54jy5
A record $13 billion bond sale by the government's debt issuance agency allayed initial fears that markets might not be able to digest the estimated $300 billion of debt required to finance its response to the economic devastation of the COVID-19 lockdown.
But fixed-income analysts remained on alert about rising long term bond rates that were luring back foreign bond investors and had potentially contributed to an unwelcome surge in the Australian dollar.
The Australian Office of Financial Management's mammoth November 2024 bond sale, priced at a generous yield to entice investors, shattered the previous record of $11 billion for a single day syndicated bond sale set in February 2017.
The offer attracted almost $26 billion of orders at the clearing price when the AOFM's hired bankers closed the order books before setting the final deal size at $13 billion.
The strong result should provide some comfort to the government that it can meet what some analysts estimate will be an additional $250 billion to $300 billion of bond issuance over 15 months,
The 4.5-year bonds paid a yield of 0.47 per cent, at the upper end of the AOFM's marketed range and exceeding the market yield for longer-term five-year bonds.[/quote]
Cheap as chips(to quote one of our hackneyed popular sayings.
The bond issue was overscribed.https://www.abc.net.au/news/2020-04-17/ ... 9/12158390
When the Government, via the Australian Office of Finance Management (AOFM), put these bonds up for sale on Wednesday morning, global investors were falling over themselves to get their hands on them.
You might wonder why, considering the miniscule yield payable upon maturity, investors could be so enthusiastic aboutinvesting in Australian government debt? If you are in the game of capital conservation then these are likely about as good as it gets.
To understand why you need only look at the alternatives. Were these same investors to invest in anything else these days, say in equities or property, they would likely incur losses given that we now live in a world sinking into depression. Those government bonds with a guaranteed return must look really attractive.
The measley 0.47% bond yield? Considering that the inflation rate is today negligable then that yield is likely enough to compensate investors for the erosion of purchasing power of their invested principal and still give them a profitable return over and abvve the inflation rate.
Governments in the West do not normally pay off debt: they simply "roll them over".
What that means is that when one bonds issue reaches maturity they pay off the b0ndholders but balance that up by initiating another bond issue beforehand to balance up the ledger. If your country has an AAA credit rating like this one then that is easy to do. AAA means that you can borrow funds at the most advantageous possible rate.
How can governments do that? Well, expectations of future economic growth and the resultant increases in tax revenue makes the debt "affordable".
As long as the money keeps on flowing and the borrowing/repayment etc. keeps on turning over then all remains well.
What happens if the music stops (i.e. if the market loses confidence in the ability of government to meet its debt obligations consequently and refuse to invest). Then the country is in deep, deep shit.