Well, so much for the debt and deficit state of emergency so beloved of Tony Abbott, Joe Hockey in years gone by, and Scott Morrison and Malcolm Turnbull during the election campaign – not to mention any number of scaremongering economists and ratings agencies.
Australia has just launched its first 30-year bond (something started by Joe Hockey when he was Treasurer, back in the debt and deficit days of 2013).
Seeing it matures in March, 2047, we know that there will be Australian government debt on the books for quite a few parliaments and Liberal party leaders and their Treasurers to come.
Perhaps they will be still there when the grand children of Malcolm Turnbull or Bill Shorten are making a tilt at PM.
The 30 year bond those is a great idea for insurance companies and super funds with long dated liabilities.
But few locals will get it with reports foreigners will grab most if not all of the $7.6 billion to be raised. A reported $13 billion in bids were received.
Where else can you get a AAA-rated bond paying 3.27%?
Rolled gold in fact for yield hungry investors.
The new bond follows successful long-term debt raisings by other countries such as Ireland, Spain, Belgium and Italy which are using record low rates to lock in a low cost funding source for decades to come (some of these issues have been for up to 50 or 100 years!).
Insurers and foreign companies with huge defined benefit fund deficits will be looking for high yield bonds of long duration like the Australian issue.
The spread has been set at 3.27%, or 101 basis points above the 10-year yield and just 42 points above the 20 year yield.
ANZ, Citi, Commonwealth Bank, Deutsche Bank, UBS and Westpac are managing the issue.
Meanwhile a few days after Moody’s warned that the big banks face probably pressures from the commercial property lending portfolios, especially for apartments, the ratings group was waxing lyrical about the Australian economic outlook.
Moody’s said yesterday in a report that Australia will be the fastest growing triple A-rated commodity exporting economy this year.
Moody’s said this forecast reflected the economy’s resilience to sharp commodity price declines, as export volumes have increased strongly despite falls in metals prices, and the services sector has benefited from a weaker dollar (which is what the Reserve Bank has been saying for more than a year).
"The weaker Australian dollar and lower interest rates have allowed it to take an increasing market share of rising global demand for tourism and education services," Moody’s says.
Moody’s expects Australia’s GDP growth to continue to outperform Canada and Norway, and come in at a similar rate to New Zealand (all triple-A on the Moody’s list).
Moody’s maintained Australia’s Aaaa rating in August with a stable outlook.
But Moody’s warned Australia’s fiscal deficit to remain wider for longer than the government projects, "constraints to fiscal consolidation are likely to persist".
"Although Australia’s general government debt will rise as a result, to around 41 per cent of GDP in 2017 – higher than in New Zealand and Norway – it will remain much lower than in Canada, and other Aaa-rated sovereigns."
Moody’s notes that all four countries have experienced rapid increases in house prices and household debt, exposing their economies and financial systems to negative shocks.
“Nonetheless, the intrinsic financial strength of Australia’s banks – somewhat higher than in Canada, New Zealand and Norway – lowers the potential cost of government support to the banking system in the event of stress,” Moody’s said.
