Australian bonds are generating the strongest demand in three years on speculation the central bank will win room to hold record-low interest rates as Treasurer Joe Hockey’s first budget focuses on deficit reduction.
Investors bid for an average 4.14 times the amount of sovereign debt auctioned from January to April, the strongest start to a year since 2011, data from the Australian Office of Financial Management show. A sale of June 2016 notes on April 4 had a so-called bid-to-cover ratio of 5.79, a level unseen since November 2012. Government bonds have gained 2.5 percent in 2014, set for their best annual performance in three years.
Hockey said last week he would adopt a prudent fiscal strategy for Australia, whose debt burden is the smallest after Estonia among developed nations. The government hasn’t confirmed or denied if it will impose a deficit levy on higher earners that the opposition has derided as a breach of an election promise not to introduce new taxes. The RBA said in April fiscal consolidation may weigh on public demand and signaled it will keep its cash target at 2.5 percent.