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.