Australia Mulls Lowering Ultra-Long Bond Sales Amid Volatility

(Bloomberg) — Australia’s debt manager is considering scaling back its issuance of ultra-long bonds as rising yields make funding more expensive.

The Australian Office of Financial Management plans to issue around A$150 billion ($99 billion) worth of bonds this year as funding officials navigate one of the steepest yield curves in developed markets. Adding to the pressure: Australia’s longer-term bond yields have become increasingly sensitive to gyrations in the US bond market, which has been volatile this year due to fears over the fiscal deficit and shifting bets on rate cuts.

There’s still demand for Australia’s long-tenor issuance, said AOFM chief executive Anna Hughes. But she added that the debt management agency has concerns over long-dated yields, forcing her team to remain flexible with issuance plans given the possibility of more swings.

“That’s something we’ll just need to keep an eye on and make decisions as to how much we’re actually tendering into some of those ultra-long bonds because it is expensive if we do follow the US,” Hughes said in an interview this week, adding that the AOFM will need to consider the “overall duration and how we approach that long-end part of the curve.”

Longer-maturity bond yields have been rising globally on concerns over fiscal deficits and geopolitical tensions. While the pressure has recently eased, investors are still cautious about the risk of inflation in the US given the possibility that tariffs can go higher. There are also worries that a planned US tax and spending bill will increase the deficit.

The correlation between Australia’s 10- and 30-year bonds and similar dated Treasuries has remained above 0.7 for the past year, indicating that the country’s long-term yields are moving almost in unison with their US peers. 

For now, the AOFM intends to keep issuing across all maturities with the majority in the 10-year part of the curve, where liquidity is greatest. It will issue bonds at a rate of as much as A$3 billion a week, while the steepness of the curve has become a talking point with investors, Hughes said.

READ: Japan’s 20-Year Sale Shows Market Still Wary on Longer Bonds 

Bond investors are now turning their attention to the deadline of Trump’s tariff reprieve on July 9, which could be a volatile period for global markets. The AOFM hasn’t revealed any plan to reduce issuance in anticipation of volatility around that date, instead pointing to its long-standing practice of adjusting debt sales as markets dictate. 

“We won’t plan ahead,” Hughes said. “We’ll need to wait and see how the market absorbs the news, and then we’ll respond to that rather than trying to pre-empt what the market might think about it.”

–With assistance from Masaki Kondo.

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