Australia: Assessing the Future of Government Bonds in a Non-Dollar World
Bank of America is pointing global investors towards the Australian government bond market, predicting that they will outperform in the post-dollar era.
In a research note published on Wednesday, FX strategists Oliver Levingston, Adarsh Sinha, and Janice Xue highlighted the importance of Australia’s fixed-income market as a hotspot for capital inflows amid global de-dollarization.
“De-dollarisation was a key theme during our trip to the US and Canada. We remain mindful of the potential for small shifts in global fund managers’ asset allocations to have a major impact on demand for AUD bonds,” the analysts said.
The report argues that Australia's smaller bond market could see extreme price volatility if global investors continue to flee US dollar denominated assets.
Investors pull back from USD due to Trump-era volatility
The report directly attributes the trend to growing dissatisfaction among global investors with U.S. financial management. The return of Donald Trump to the political arena, coupled with aggressive trade policies and what the bank calls “economic nationalism,” has spurred investor portfolio diversification.
Trump announced sweeping tariffs on New Year’s Day, dubbed “Liberation Day,” sparking a global market sell-off as investors fretted over lingering uncertainty and isolationist U.S. trade policies.
The move, dubbed the “Sell America” movement, involved selling all Wall Street stocks, U.S. bonds, and even the U.S. dollar itself. The U.S. dollar index (DXY), which measures the greenback’s strength against a basket of major currencies, has fallen about 9% since the start of 2025—its biggest decline in more than 10 years.
Confidence in the dollar is virtually gone; as Bank of America’s June survey of global funds showed, 86% of managers expect the currency to depreciate in the next 12 months, setting a new record low.
Fund managers are now less exposed to the dollar than they have been in the past two decades. Nearly 20 percent of 222 managers, with more than $587 billion in assets, said betting on the dollar’s decline was the “most crowded trade” globally.
This loss of confidence paves the way for other currencies, especially those linked to stable, resource-rich economies like Australia, to become more sought after by global reserve managers and major institutional investors.
Central banks boost demand for AUD bonds
Australia is feeling the change in sentiment more clearly now. Its 10-year government bond yield is around 4.24%, not far off the US yield of 4.43%. But the bank expects the gap to widen over the next few years.
By the end of 2026, the bank predicts Australian bonds will have a spread of around 75 basis points, meaning demand will increase and bond values will climb.
The report highlights that the outlook for demand for AUD-denominated fixed assets remains positive, supported by the growth of Australia’s superannuation sector and the potential for deregulation of banking.
This is largely due to increased demand for “secondary dollar assets,” stable, hard-earned currencies in distant countries backed by solid economic fundamentals. The share of official reserves held in Australian dollars has doubled over the past decade. Strategists estimate that a 1% increase in global reserve demand could absorb 185% of the Australian government’s bond offering in the current financial year.
Australia’s major pension funds are also increasingly moving into the domestic bond market. These funds are becoming global investors on their balance sheets, and the demand for AUD denominated assets has become more pronounced than ever.
Source: https://tintucbitcoin.com/bofa-dau-tu-trai-phieu-va-tai-san-so/
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