The Role of Foreign Bond Issuance: The Case of Australia

Authors

  • Jonathan A. Batten,

    1. Batten: Department of Finance, The Hong Kong University of Science and Technology; Hogan: School of Finance and Economics, University of Technology, Sydney; Szilagyi: Judge Business School, University of Cambridge. Sadly, Warren P. Hogan died on 17 December 2009. His obituary appears in Aspromourgos (2010).
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  • Warren P. Hogan,

    1. Batten: Department of Finance, The Hong Kong University of Science and Technology; Hogan: School of Finance and Economics, University of Technology, Sydney; Szilagyi: Judge Business School, University of Cambridge. Sadly, Warren P. Hogan died on 17 December 2009. His obituary appears in Aspromourgos (2010).
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  • Peter G. Szilagyi

    1. Batten: Department of Finance, The Hong Kong University of Science and Technology; Hogan: School of Finance and Economics, University of Technology, Sydney; Szilagyi: Judge Business School, University of Cambridge. Sadly, Warren P. Hogan died on 17 December 2009. His obituary appears in Aspromourgos (2010).
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    • The authors wish to thank the Asian Development Bank (ADB) for providing funding to support this research and Thomson Reuters for providing fixed income data. Under the working group of ASEAN+3 Asian Bond Market Initiative (ABMI) on Local Currency Bond Issuance by Multilateral Development Banks, Foreign Government Agencies, and Multinational Corporations, ADB conducted studies on local currency bond issuance by foreign issuers in selected regional and non-regional countries. These studies were initiated by the Ministry of Finance (MOF) of the People's Republic of China (PRC) in its capacity as the chair of this working group. Excerpts of this article were presented at the ASEAN+3 Deputies Meeting in November 2004 and an updated version of the Korean study was published as Batten and Szilagyi (2007). This present article is an extension and development of these earlier ideas and is reliant upon data provided by Thomson Reuters. The opinions presented here are exclusively those of the authors and do not in any way represent those of the ADB, the MOF, PRC or any government agencies.


Abstract

We examined the recent development of the foreign bond—termed Kangaroo bond—market in Australia. Overwhelmingly, issuers in this market are of high credit quality and comprise sovereign, supranational and major international financial institutions. Local institutional investors have a preference for simple, fixed-rate pricing structures, with foreign issuers reliant upon converting their Australian dollar-denominated bond proceeds into the currency and coupon type of choice using cross-currency swaps. The Kangaroo bond issuers provide a natural counterparty to Australian residents issuing in foreign currency in offshore markets, where cross-currency swaps allow them to easily convert their proceeds into Australian dollars.

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