Aus bonds take centre stage in Asia

Australia’s capital markets have assumed an increasingly prominent role in the Asia-Pacific region in recent years. Once overshadowed by the appetite and scale of Asia’s financial hubs, the Australian bond market is now setting new records, drawing offshore investors and issuers as well as domestic players who have traditionally looked north.

This shift in the regional landscape is occurring alongside a growing appetite for long-term debt.

According to Jimmy Choi, Head of Capital Markets at ANZ, this movement has been driven by multiple factors — including structural changes in both Asian and domestic markets, and booming Australian dollar demand. As 2025 unfolds, Choi is bullish on the prospects of further growth.

The Australian bond market had a stellar year in 2024, with total issuance reaching $A247 billion – a 14 per cent increase year on year.

“The actual aggregate amount is important,” Choi says.  “It really sets a new benchmark. It’s the largest volume that has been issued and has cemented Australia as the largest market in the region.”

A key driver of this expansion has been the increasing number of foreign issuers, Asian corporates and financial institutions — traditionally reliant on US dollar and euro markets — that are turning to the Australian market as an alternative.

“The volume in Asia has dropped over the last three years,” Choi says. “While Australia’s market has gone up, Asia’s volume has decreased. But the buyers still have a fair amount of liquidity, and so they’re now buying into our market.”

China’s offshore issuance declining as domestic obligations take precedence has also been a factor, Choi says.

Demand is also shifting. Australia’s $A4 trillion superannuation sector, one of the world’s largest, has been preferencing fixed-income investments. Even small shifts in the sector’s capital allocations can have a significant impact on markets.

Changing dynamic

Beyond the increasing volume of issuance, another recent trend in regional markets has been the growing availability of long-term debt. Historically, Australian issuers seeking long-term funds were forced to look to international markets, but today that dynamic is changing.

The participation of multinationals is reinforcing that confidence.

“Many Australian companies that historically went offshore are now saying, ‘Wow, I didn’t know we could do this domestically’,” Choi says.

“Big companies with big balance sheets can now stay domestic. It’s cheaper to fund; they don’t have to do a cross-currency swap.”

Structural shift

The global interest rate environment remains a key driver of capital-market flows. While the Reserve Bank of Australia has begun an easing cycle, Choi cautions against over-interpreting short-term rate movements.

“Fixed-income buyers are long-term buyers,” he says. “The market has baked in that this year will see a downward trend in base rates whether it be the US or Australia. But I think most buyers have factored that in as well, and that’s why you’re seeing a bit more buying earlier on to take advantage of high rates, from an investor perspective.”

Volatility, however, remains a persistent risk, Choi admits. Geopolitical shocks or unexpected policy developments can unsettle investors.

“When there’s a ‘risk-off’ event, the market can shut temporarily,” Choi says. “But there will always be transactions.”

With foreign capital increasingly finding a home in Australian bonds and domestic investors finding renewed appetite for fixed income, Choi is optimistic about the trajectory of Australia’s capital markets.

“At ANZ, we’re generally quite bullish this year on the bond markets,” he says. “We’re going into an easing cycle, which means that a lot of borrowers will start to come and take advantage of that.”

“We feel the general environment should be strong for fixed income and we’re on track for another record year in terms of volume issuances.”