Financial Market Development and the Role of Foreign Bond Issuance: The Case of Australia

Abstract

We examine the recent development of the foreign bond market - termed Kangaroo bonds - in Australia. Initially, a perspective is provided on the scale and scope of this market with particular attention paid to the characteristics of issuers. Overwhelmingly, this market is high credit quality and comprises sovereign, supranational, and major international financial institutions. Local institutional investors appear to have a preference for simple fixed-rate pricing structures; issuers then swap Australian dollar-denominated bond proceeds into the currency and coupon type of choice. There are two key features of this market which have facilitated its development: first, the highly liquid Australian foreign exchange and derivatives markets facilitate risk transformation; and second, enabling regulation has emphasized cooperation with market participants to maintain liquidity in benchmark issues and competitive pricing.

Keywords: Bond Markets, Financial Market Development, Foreign Bonds, Kangaroo Bonds, Australia

JEL Classification: F34, G18, O57