The Financial Crisis Of Australian Bonds - 1349 Words

Prior to the crisis, the market comprised mainly bonds issued by the Australian banks and asset‑backed securities. Together these accounted for just over half of the outstanding stock of Australian bonds in June 2007. Bonds issued by the public sector were a relatively small share of the market, at 16 per cent of the total outstanding Overall, the size of the bond market in mid-2007 was equivalent to around 84 per cent of Australia s annual GDP. In the subsequent seven years the stock of Australian bonds on issue has increased to reach the equivalent of nearly 100 per cent of GDP. The increase has mainly been the result of debt issuance by the Commonwealth and state governments to finance their budget deficits as they sought to support†¦show more content†¦Discuss the implications of this changing market for other vested parties in the Australian bond market, namely for: Central Government; This changing market has had numerous implications for a various number of parties such as central and state governments, Australian corporates and fixed interest fund managers. The evolution of the Australian bond market over the past several years has been shaped to a large extent by the fallout from the global financial crisis. The Australian central government has been affected by this changing bond market as shown through the substantial rise in the market share of commonwealth government securities (CGS). However, the collective stock of CGS and semi-government bonds have fluctuated representing 40% of GDP in the first half of the 1990s, then falling to under 15% of GDP by 2005 and finally regaining to approximately the 40% level by 2016/17. The vast majority of the post-crisis CGS issuance has been purchased by non-residents attracted to the Australian Government s AAA credit rating and favourable level of yields relative to other highly rated sovereign issuers. As a result of non-resident investors, segments of the Australian bond market were altered with over 60% of the CGS market being controlled by non-residents at the end of 2013. Other implications resulted such as the tendency for yields to follow developments in global markets. While the strong historical