The two most notable developments are the growth of Asian demand for Australian product and changing demand dynamics within Australia that are delivering more liquidity to the fixed-income and credit markets.

The Asian story is part cyclical, part fundamental. Reade noted that regional bank treasury desks that have traditionally been substantial buyers of Asian investment-grade bonds in US dollars started noting in 2024 that US dollar funding costs were too high, the US Treasury curve was inverted and it was very difficult for them to buy US dollar denominated bonds because most of them had negative carry.

“In this environment, one of the things that pretty much every bank in Asia wanted to talk to us about was Australian dollar credit,” Reade revealed. “One reason these investors were very active in Australian dollar bonds this time last year was because the RBA [Reserve Bank of Australia] had not hiked rates as aggressively as the US Federal Reserve. Australian dollar funding costs were lower and the curve was positively sloping, so they could buy Australian dollar bonds with positive carry.”

The impact of 100 basis points of rate cuts in the US and a steeper US Treasury curve has been to lessen the relative-value edge offered by Australian product. Reade explained that Asian bank investors are still buying Australian dollar bonds, but many of them are also starting to look at US dollar bonds again. More rate cuts in the US will intensify the trend.

On the fundamental side, Reade added: “The other aspect from Asia that I think is very important for the Australian dollar market is supply. US dollar yields have jumped relative to local currency yields in Asia, most notably in China. This means it is typically much cheaper for Asian issuers to fund in their local currencies than in US dollars, so the amount of issuance in the Asia investment-grade market in US dollars has shrunk significantly.”

Asia ex-Japan US dollar supply peaked at an annual total of around US$300 billion in 2017-21 but barely reached half that level in 2022-24.

“Asian fund managers still have a lot of money to invest, but their traditional source of investment – Asian investment-grade bonds – continues to shrink,” Reade added. “The way they are dealing with this is by buying more Australian, Japanese and Middle Eastern names in US dollars, and also increasingly by looking at the Australian dollar market.”

Reade believes this is a structural change that will mean more Asian participation in the Australian dollar market than has historically been the case. “It will be a positive driver going forward as we don’t anticipate a lot of Chinese supply in US dollars coming back. This in turn means Asian investment appetite, we believe, will stick to Australian dollars.”

At the same time, domestic asset allocation in Australia is finally starting to swing more toward income assets. Reade continued: “Australia is still very overinvested in equities and underinvested in bonds. But the feedback we get and the flows we see suggest there is reallocation going on from equities and other asset classes to fixed income. Part of this is the ageing population and part of it is simply more attractive yields in the fixed-income market. But there is still a lot of upside relative to other countries.”

To illustrate this point, Reade highlighted that there is “a lot of green” on the Australian fixed-income exchange-traded fund (ETF) inflows table, which he says is indicative of broader appetite for fixed-income product locally. “We are looking at about A$14 billion (US$8.7 billion) of fixed-income ETF assets today in an asset class that didn’t really exist as recently as five or six years ago,” Reade noted.

“It is still not a huge amount but, as incremental appetite that wasn’t previously there, it is very meaningful – and we think it is only going to grow as time goes on,” he added. “We continue to monitor this, but these flows keep getting stronger. This is a very, very positive dynamic for the Australian dollar credit market.”

Demand is driving supply, and Reade pointed out that the Australian dollar credit market is now a lot more competitive than it has been historically: corporates can do longer-dated paper, they can do larger size and treasurers have greater funding certainty coming to the Australian dollar market than has ever been the case.

Reade told roundtable participants: “As a result, issuance in the corporate and financial space is increasing and we think the trend is going to continue.”