In a new report – Australian Bonds: A new Wave of Multiculturalism – Pimco said that 15 years ago 93 per cent of bond issuance came from Australian institutions, while today, over 20 per cent of the industry is now made up of issuers domiciled offshore.
The report found that this has had a major impact on the make-up of Australian credit indices.
The concentration of Australian issuers, in reference to the Bloomberg AusBond Credit Index, has dropped from almost 90 per cent to 55 per cent from 2010 to 2015.
In 2010, Australian domiciled issuers made up 89 per cent of the index, whereas in 2015, this has dropped to 54.8 per cent.
In the same period, US issuers increased their share from 4.5 per cent to 12 per cent. Issuers domiciled in the Netherlands also increased their share, up from 2.5 per cent in 2010 to 8.2 per cent in 2015.
Pimco argued that the increasing diversification of the Australian bond market is positive for investors.
“First, it has made the domestic bond market far more liquid and deep, which allows for greater confidence by both foreign and local issuers to issue in [Australian dollars],” the report said.
“Second, this issuance has provided a broader opportunity set for investors in the AUD bond space, with more opportunities for diversity of credit, yield and capital appreciation.
“Finally, with greater issuance by non-Australian entities, local bond benchmarks become more attractive to foreign investors, which encourages further capital flows to Australian markets and improves Australian issuers’ ability to raise capital,” the report stated.
Pimco said that the greater level of non-Australian domiciled issuance requires investors to adopt a global approach to bond markets.
“A global view is also essential to understanding the implications of foreign capital flows and their effects on the Australian market.”
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