Another relevant input is coming, as the Australian Office of Financial Management (AOFM) announced in March that it expects to print A$150 billion (US$93.7 billion) of new bonds in 2025/26 – up by 50 per cent on the current year.

In some ways, a larger sovereign issuance task could represent a boon for the Australian dollar market. The AOFM has acted as a pathfinder for the market as a whole over the past decade and a half, with the increasing liquidity and global relevance of its programme attracting global investors to the currency – a starting point from which many in time seek to diversify their holdings, frequently into semis and SSAs.

On the other hand, the step-up in issuance requirement could pose a challenge for the AOFM. Semi-governments – with their higher yield and significantly improved liquidity – have been something of a vogue asset class for international investors in the Australian dollar market for the past couple of years but the AOFM is now perhaps less able to share the limelight.

A number of issuers speaking at the KangaNews event noted the extent of global investor focus on the semi-government sector in recent times – some even joked that they seem to spend more time talking about semis than their own programmes during roadshow meetings.

Continuing to unlock new demand remains a priority for the AOFM in this context, especially given it is sharing the global stage with seemingly ever-growing sovereign debt issuance from the US and Europe. The agency’s chief executive, Anna Hughes, told conference delegates the agency is maintaining a watching brief when it comes to the impact global sovereign debt market ructions could have on the Australian dollar market.

She said: “We need to continue to bring our A game to the investor relations aspect of our role, because we need to keep looking for areas of unmet demand, we need to keep explaining the Australian story and we need our investors to know who we are. The demand is there, but the additional sovereign debt there is going to be will provide some headwinds.”

Ultimately, the AOFM is confident that there is enough of a buyer base already active in the Australian dollar high-grade complex or that can be brought into the mix to satisfy all issuer requirements. Switching between sovereign and semi-government holdings is not a new phenomenon but it is typically at the margin.

Hughes added: “It is our experience that investors who straddle the sovereign and semi-government markets are often allocating to sovereign debt for different reasons than they might be buying semi-government debt.”

Breadth of investor base has also played a role in supporting the increase in Canadian-origin Kangaroo issuance while still affording opportunities to longstanding tier-one SSA issuers. Laura Fan, head of funding at Inter-American Development Bank (IADB), suggested at the KangaNews event that the investors that buy the Canadian provinces or pension funds may be more focused on yield and therefore have traditionally not purchased IADB Kangaroo bonds anyway.

Marcin Bill, head of funding, Asia Pacific, at International Finance Corporation (IFC), agreed that most supranational issuers – including IFC – have not had their access to the Kangaroo market impeded by the growth of Canadian supply. He suspects there could be some marginal challenge for second-tier SSAs – names that operate in “a similar zip code” of spread to the Canadians – but that the range of tenors and investors available in Australian dollars should counteract most of the crowding-out effect.

Like the AOFM, other issuers are focused on maximising the breadth and depth of their potential Australian dollar buyer base. Increased global participation in the market has been spearheaded by the SSA sector and the AOFM. But the semi-governments are increasingly getting in on the act, too.

Paul Kelly, head of markets at Treasury Corporation of Victoria (TCV), said: “A good portion of Kangaroos are going offshore, and this is now the case for semi-government debt too. This tells me a couple of things: that there is still ample capacity for us to issue in Australian dollars and traditional issuers are not getting crowded out of this space. It also tells me that TCV needs to keep thinking globally.”

The investor sector that has become the biggest talking point is hedge funds. Long active in the sovereign market, hedge funds became more prominent in semi-government bonds post-pandemic in line with the sector’s growing liquidity. SSA issuers say a similar driver – as well as a buy-side desire for diversity – is also bringing hedge fund accounts into their Kangaroo books.

There is, issuers say, something of a virtuous circle of liquidity and demand. Fan explained: “Because of the increased depth of the market, due in part to the size of new-issuance transactions, we have also witnessed increasing breadth of investor demand. A lot of the new issuers have brought in an additional investor base that has also looked at other Kangaroo issuers, including supranationals, as they seek relative value opportunities.”

Fan believes that some of the interest from investors that has been generated by the Canadian names has had a positive spill-over effect on IADB. For instance, hedge funds were not traditionally very active in Australian dollar supranational transactions but IADB has witnessed some flow into its books in recent months.

Investors also benefit from the wider range of active issuers. Carlos Yep, director, funding, at Ontario Financing Authority, suggested that being able to trade relative value between the biggest SSAs, Australian semi-governments and the Canadian provinces adds to the appeal of the market to investors. “Even having the ability to switch within the same name creates more opportunities for flow and to arrive at the right pricing,” he added.

Issuers say they are focusing a lot of their investor relations efforts into understanding the drivers of the hedge fund bid. There is some confidence that it is not all hot money. For instance, Bill says hedge fund demand has also come into and solidified its position in IFC Kangaroo books – and some of these buyers operate more like asset managers than traders.

Kelly added: “We have spent a fair bit of time trying to understand the hedge fund community right down to the manager level. We have been pretty vocal that we think they are an important part of our issuance strategy – particularly in the new world order, where the domestic bank balance sheets are not as significant buyers as they have been in the past. The hedge funds will be important providers of primary and secondary liquidity.”

This work is vital, given the potential risk posed by a substantial investor base whose behaviour in stressed market conditions has yet to be tested in the Australian dollar market. Sam Dorri, managing director at CPP Investments, said: “The exit could be material. SSA product in Australian dollars isn’t used to A$100-150 million sell tickets, let alone three big pots trying to unload A$1.5-2 billion of product over the course of a few months. I think this is an important thing to be aware of, and maybe one way to tackle it is to be prudent on allocation.”

The KangaNews event took place right at the start of the volatility caused by the imposition of US trade tariffs. But to that point, market users noted that Australian dollar liquidity has largely been trending in a positive direction.

Should conditions turn more dramatically, market participants are placing their hopes in breadth of demand to put a reasonable floor under Australian market performance. Tim Wade, managing director, rates trading at TD Securities, expressed a degree of confidence that the potential audience for Australian dollar product is now broad enough that even relatively significant sell-downs would eventually be met by a bid on the other side – once the bonds get cheap enough.

He highlighted the “reshaping” of the semi-government curve as an example: as semi-government yields rose on a relative basis, “some quite significant buyers came into the sector”, Wade noted.