Bloomberg News

Australia 10-Year Bond Yield Drops to Record on Europe Concerns

November 24, 2011

Nov. 24 (Bloomberg) -- Australian government bonds rallied, sending the benchmark 10-year yield to a record low, after declines in German bunds sparked concern the sovereign-debt crisis will engulf Europe’s largest economy.

The South Pacific nation’s three-year rate extended its drop this month to 83 basis points, poised for its biggest decline since November 2008, before a German report that may show a gauge of business confidence dropped for a fifth month. The Australian dollar rose from a seven-week low on speculation investors are buying the currency to diversify assets. New Zealand’s currency rallied from its lowest level in eight months as Asian stocks pared an early drop.

“Investors are unwilling to buy euro-denominated assets because they’re uncertain about what asset they’ll hold in the event of a euro break-up, so they’re diversifying,” said Matthew Johnson, an interest-rate strategist at UBS AG in Sydney. “Both Australian and New Zealand bonds are seeing a good bid on account of that.”

The yield on Australia’s 5.75 percent note due May 2021 fell as much as 10 basis points to 3.806 percent, before standing at 3.87 percent as of 5 p.m. in Sydney. The three-year yield fell two basis points to 3.05 percent after earlier touching 2.97 percent, its lowest since February 2009.

The MSCI Asia Pacific Index declined 0.2 percent, after earlier losing 0.7 percent. The Standard & Poor’s 500 Index fell 2.2 percent yesterday.

German Bonds, Confidence

Germany failed to get bids for 35 percent of the 10-year bonds offered for sale yesterday. The yield on its 2.25 percent securities maturing in September 2021 climbed 16 basis points to 2.08 percent, the highest since Oct. 28 based on closing levels.

The Ifo institute’s business climate index for Germany dropped to 105.2 in November, the lowest since March 2010, according to the median forecast of economists in a Bloomberg News survey. The Munich-based group will release the data today.

The Australian dollar reversed a three-day decline on prospects investors are buying the currency in a bid to diversify their holdings amid Europe’s fiscal crisis.

“You are seeing a very, very modest bounce in some of the higher-yielding currencies,” said Callum Henderson, global head of foreign-exchange research in Singapore at Standard Chartered Plc. “The Australian dollar, like other commodity currencies, continues to benefit to some degree from reserve diversification.”

The so-called Aussie gained 0.3 percent to 97.15 U.S. cents from yesterday, when it slid 1.5 percent and touched 96.64 cents, the weakest level since Oct. 6. It fetched 74.95 yen from 74.90.

Relative Strength

The Australian dollar’s 14-day relative strength index versus the greenback was at 33.04, approaching the 30 level that signals to some traders an asset’s price has fallen too quickly and may be set to reverse direction. The New Zealand currency’s RSI versus its U.S. counterpart was at 30.6.

Risk currencies such as the Australian and New Zealand dollars will be lower toward the end of the year, Henderson said.

New Zealand’s dollar rose 0.3 percent to 74.24 U.S. cents after sliding 1 percent in New York yesterday, when it fell to as low as 73.86. That’s the least since March 23. The so-called kiwi traded at 57.26 yen from 57.22 yen.

The nation’s two-year swap rate, a fixed payment made to receive floating rates, was at 2.64 percent after earlier falling to a record low of 2.60 percent.

New Zealand’s imports exceeded exports by NZ$282 million ($209.7 million), from a revised NZ$789 million deficit in September, Statistics New Zealand said today in Wellington. The median estimate in a Bloomberg News survey of nine economists was for a NZ$450 million shortfall.

--Editors: Jonathan Annells, Nate Hosoda

To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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