Australia’s Central Bank may raise interest rates
Mizuho Asset Management Co., a unit of Japan’s second-largest bank has intentions to add to its Australian bond holdings. According to Merrill Lynch & Co., Australian government bonds are set for their first annual loss since 1999 and there are speculations that the country’s central bank will lead the Group of 20 nations in raising interest rates. The futures market is pricing in a 40 percent chance the Reserve Bank of Australia will increase its benchmark rate at 2:30 p.m. in Sydney after Australia avoided recession this year.
However, Akira Takei, a Tokyo-based manager in Mizuho Asset’s international bond investment department said, “There are rumors that they will raise rates, but I don’t think they will. Any rise in interest rates after the decision will be just a knee-jerk reaction. Aussie bonds look cheap.” Akira helps oversee 250 billion yen ($2.8 billion) assets.
The Australian economy expanded 0.4 percent in the first quarter and 0.6 percent in the three months ended June 30. As said by Governor Glenn Stevens on Sept. 28 in testimony to the senate economics references committee, “Interest rates will have to “move off their current unusually low levels.”
Higher interest rates in Australia, compared with 0.1 percent in Japan and as low as zero percent in the U.S., attract investors to the South Pacific nation’s assets. Australia’s two-year government securities offer a 3.5 percentage point premium over similar maturity U.S. Treasuries and a 4.13 point advantage over Japanese government debt. , Bloomberg data show that for 10-year notes, the premiums stand at 1.97 and 3.92 percentage points, respectively.
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