Australia cashes in on European misery

As European leaders spend time arguing about the pros and cons of Eurobonds, and Greece’s prime minister cancels foreign trips during what he calls a “critical” week for his indebted nation, the largest bond issuers in Australia are planning roadshows to the US to convince investors there that lending to Europe is not worth the risk, while lending to cash-rich countries is a safer bet.

Australia posted five consecutive monthly trade surpluses up to July, largely with the support of strong prices for its commodities, which it exports chiefly to China. July’s surplus was AUD $2bn.

The board of Australia’s Reserve Bank held interest rates steady last fortnight at 4.75%. Australia’s dollar has remained above USD $1 since March, when Australians held what were known as ‘parity parties’.

This week’s roadshow by Australian sovereign and corporate issuers, in New York, will include representatives of Australia’s Office of Financial Management, senior managers at the Reserve Bank, and from two of Australia’s large four banks.

It is the first such co-orindated roadshow from ‘Down Under’ to bring together such an array of corporate, sovereign, and quasi-sovereign issuers, and operators of Australia’s credit markets.

Together the entities presenting are seeking to borrow over AUD $150bn from the world’s competitive open markets in the year to July, Australia’s financial year.

The beleaguered southern European nations against whom they are competing for investor interest and cash, have sometimes struggled to garner enough buying interest, at least at the kind of interest rates acceptable to most developed sovereigns.

Australia’s federal government is expected to make gross bond issuance this year of AUD $50bn, while New South Wales, the country’s most populous state, faces funding requirements of AUD $10.2bn.

It will not be all plain sailing, though. Australia’s federal debt is rated AAA by Standard & Poor’s, but the agency is reviewing New South Wales’s rating – currently also top notch – after the most recent state budget.

The yield on Australian 10-year paper, issued via Australia’s Reserve Bank, has fallen this year from a peak of around 5.65% in February, to 4.2% now, according to information providers Trading Economics.

The price has risen as investors seek safer havens than debt of Greece, whose 10-year debt recently topped 20%, and of other high-yielding southern European nations.

Greece’s prime minister George Papandreou has cancelled a planned US visit this week.

A two-day financial summit of European officials did not set out firm plans to help support beleaguered eurozone nations such as Greece, which is set to become technically bankrupt by the middle of October if more bailout money – the sixth tranche of central loans it would have received – is not forthcoming.

Athens said over the weekend that the IMF and European Union inspectors, who are reviewing how well Greece is moving to control is debt crisis, will speak on the telephone today with Greece’s finance minister Evangelos Venizelos, to help form their view and accelerate action necessary.

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