WHETTON Kangaroo issuance is up by 28 per cent year-on-year in 2018. A year ago most people would not have predicted this scale of uptick in Kangaroo deal flow with the Australian-US dollar bond spread at minus 5 or 10 basis points. But it is happening because yields are higher and hitting the bogies of many investors.

Seven years ago there was no Japanese life-insurance money in the Australian dollar market. In the last couple of years life insurers from Korea and Taiwan have also stepped up, arguably at a faster pace than Japan. It is not inconceivable that in seven years’ time Taiwanese and Korean interest could outpace the current level of Japanese investment.

There is no reason to believe Australian dollars will diminish as a source of alpha. Interest may be up and down the curve, shifting between government bonds, credit, and points in between, but I don’t believe it is a diminishing story.

ANDERSON We view demand as having slowed as Australian dollar spreads have compressed to the US. But this is not just an Australian phenomenon. It also applies to New Zealand and many other markets.

I remain confident that offshore interest in Australian dollars will remain. Australia still provides a diversification benefit for investors, particularly those that have a structurally bearish view around the US dollar. Our real yield is also still relatively high.

For an Australian-based investor, the pickup in the hedge back to US dollars means offshore investment is currently less attractive. Any diminishing demand from offshore will be augmented by domestic Investors keeping funds onshore.