US corporates set to flood Aussie bond market
With AI capex sparking a surge in global bond issuance, Betashares has said Australia is emerging as the ‘cleanest dirty shirt’ for global investors seeking fixed income allocations.
With artificial intelligence hyperscalers expected to spend around US$660 billion on capital expenditure this year, global bond issuance is surging to finance the build-out.
Meanwhile, diversifying funding sources away from US dollar markets is becoming a growing priority, with Bank of America’s latest foreign exchange and rates sentiment survey showing dollar positioning has turned its most negative in 14 years this month. US Treasuries specifically have been unsettling investors for some time as the country grapples with rising debt.
This trend is already becoming evident among the hyperscalers, with Alphabet, the owner of Google, issuing debt last week in sterling and Swiss francs.
Against this backdrop, Betashares’ head of fixed income, Chamath De Silva, says the Australian bond market is likely to attract far greater interest from global investors this year.
“The credit market has matured materially, the investor and issuer base is broadening, and Australia’s fiscal position stands out at a time when concerns around debt sustainability are rising globally.
“Australia continues to look like the cleanest dirty shirt in global fixed income. Compared to the US, UK and Japan, our public balance sheet remains in far better shape, we retain a AAA credit rating, and there are fewer concerns around fiscal policy or central bank independence,” De Silva said.
He added that with the hiking cycle largely priced in, a compelling term premium, and structural advantages, Australian government bonds should present as an “attractive destination” for global investors seeking high-quality sovereign exposure.
It follows comments from J.P. Morgan Asset Management (JPMAM) at a Sydney briefing this week that the firm has initiated an allocation to domestic sovereign bonds, believing the RBA is the “last central bank standing” when it comes to monetary policy discipline.
In addition to government bonds, De Silva noted rising global demand for Australian credit, citing the country’s robust financial sector, greater representation in global indices, and relatively attractive credit spreads.
He explained that the surge in global bond issuance, driven by US technology and data centre operators funding AI infrastructure, has increased the weight of the technology and communications sectors in global investment-grade benchmarks.
Despite this, Australia remains structurally underrepresented in these sectors, with technology currently making up just 0.15 per cent of the AusBond Credit Index, leaving ample room for growth.
De Silva added that increased issuance from highly rated global AAA and AA corporates in AUD markets would further broaden domestic opportunities, allowing investors to access high-quality global credit without venturing offshore.
“The Australian corporate bond market has been historically starved of technology-related issuance, currently holding just a single Apple bond which will mature this year.
“As global investors look to diversify funding sources and reduce concentration in US-dollar credit, we foresee more issuance of AUD denominated global technology and communications bonds, which we also believe will be strongly supported by investors,” De Silva said.
He said Betashares expects this trend to emerge in the second half of the year, though recent announcements from US hyperscalers could push technology to represent a much larger share of the AusBond Credit Index even sooner.
At the same time, Australia’s debt picture isn’t flawless. The International Monetary Fund (IMF) flagged earlier this week that while the federal budget is improving, rising state and territory debt could require federal intervention, potentially impacting credit ratings.
However, it still offered an overall positive outlook for the economy’s growth over the coming year.
