China holds up to 20% of Aus debt - and is now unwinding

SpacePete · Oct 9, 2015

This was unexpected. Impact is negative for the AUD if China unwinds. And it looks like they are.

China's Australian bond ownership is bigger than we thought

The Chinese government may account for up to one fifth of investment in the Australian bond market, and a third of all foreign buying, according to analysis of data released overnight by the International Monetary Fund.

And as China liquidates its almost $US4 trillion ($5.7 trillion) stockpile of reserves, the Australian dollar might come under more pressure than previously expected.

...RBCs Turner said that as China's reserves have begun to shrink, "a key source of demand for $A paper is likely to have been curtailed, and it seems unlikely the private sector flows on the other side of these reserve transactions will seek to find a similar home in Australian dollar fixed income."

To put this into context, there are around $730 billion of highly rated outstanding Australian dollar bonds, implying China may own just under 20 per cent, and with $400 billion of bonds held offshore, China could represent one third of total foreign holdings, RBC said.

http://www.smh.com.au/business/mark...s-bigger-than-we-thought-20151001-gjz2xy.html
Click to expand...

China may own up to 20 per cent of Australian Government debt: RBC

Dollar and budget under pressure as China unwinds investments

That unwinding has potential to not only push the dollar lower but put the budget under increased pressure as borrowing costs rise.

"Given its [China's] reserves have begun to shrink, a key source of demand for Australian dollar paper is likely to have been curtailed," Mr Turner wrote in a note to clients.

RBC, which has a large and influential presence in the global fixed income market, argued as the big institutional investors were unlikely to pick up the slack, there would be upward pressure on Australian bond yields and downward pressure on the Australian dollar.

"In this regard, unless supply of Australian dollar fixed income slows markedly which seems unlikely given the state of the federal budget pressure will remain for the price to clear at either a higher yield or lower exchange rate, or some combination of the two," Mr Turner said.

In recent years, the federal budget has been helped to a large degree by the low yield environment which has kept a lid on borrowing costs and moderated the deficit.

A rise in government debt yields is not exactly the news new Treasurer Scott Morrison would welcome.

Currently the Australian Office of Financial Management (AOFM) needs to borrow around $70 billion a year to cover maturing government debt as well as a federal budget deficit which is forecast to be around $25 billion next year.

http://www.abc.net.au/news/2015-10-...tralian-debt-much-higher-than-thought/6821346
Click to expand...

Log in or Sign up

China holds up to 20% of Aus debt - and is now unwinding

SpacePete Well-Known Member Silver Stacker

Share This Page

Log in or Sign up

China holds up to 20% of Aus debt - and is now unwinding

SpacePete Well-Known Member Silver Stacker

Share This Page

Useful Searches