The newly launched exchange traded fund that Australian bonds provides investors with exposure to one of the more fiscally sound developed economies that also offers high returns.
PIMCO Australia Bond Index Fund (NYSEArca: AUD) was launched on Oct. 31. The fund tries to reflect the Bank of America Merrill Lynch index of Australian bonds, which has generated a 13% return over the past year in U.S. dollars, compared to the 5.7% for U.S. corporate and government debt, report Candice Zachariahs and Sarah McDonald for Bloomberg. The Australian bond index had a yield to maturity of 4.7%. [PIMCO Introduces International Bond ETFs]
“Australian yields are attractive relative to what’s available in the U.S.,” Robert Mead, managing director in Sydney for Pomco, said in the Bloomberg article. “Investors maintain an Australian dollar position and thereby access the positive real returns currently offered by Australian bond investments.”
Among the developed world, Australia has the second-lowest debt burden and second-highest benchmark borrowing costs.
Australian Treasurer Wayne Swan promised to return the government’s budget to surplus by 2013. The central bank projects growth will be 4% for the year and at least 3% next year. The Reserve Bank of Australia reduced its interest rates last week, the first time in two and half years, to 4.5% as both inflation and global growth are slowing.
Investors are attracted to Australia’s close ties to emerging Asia’s rapid growth and demand for commodities.
“Australia’s secular, or long-term story is what we at Pimco feel is most attractive, including that country’s status as a large commodity exporter and key trading partner with Asia and emerging-market nations,” Mead said. “We expect the U.S. economy to move sideways with low growth for some time, whereas Australia is poised to see further growth in coming years.”
For more information on international bonds, visit our international Treasury bonds category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.