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Australian Bond Outlook Improves as Issuance Eases

ADMIN || 18th December 2025

The Australian government’s funding arm just cut its expected total borrowing for the current fiscal year by a sixth, and that’s sparking a modest rally early on Thursday for its bonds. The announcement represents a timely reminder that the long-term outlook for the country’s debt may be rosier than this month’s selloff might indicate.

Three-year yields are down 4bps and 10s declined 2bps contrasting with flat Treasuries overnight after the AOFM said bond issuance will total A$125b in the 12 months through June 30, 2026, down from the initially planned A$150b.

While that seems like an impressive reduction in many ways the market should already have been anticipating something similar. Australia’s A$1b offering on Wednesday capped sales for calendar 2025, and left issuance at A$62.5b halfway through the fiscal year. The fact that the announcement boosted bonds even modestly underscores the way that their recent slide owes so much to the hawkish pivot in the RBA’s stance.

Australian 10-year bonds are the cheapest they’ve been relative to US peers since mid-2022. That sits oddly given the smaller nation’s much sounder debt metrics: the IMF says Australia’s net debt sits at about 33% of GDP, whereas the figure for the US is ~100%. While the divergence between a Fed that’s still cutting rates and the RBA’s move to consider the potential for hikes has driven Aussie bonds to underperform, the longer-term outlook should favor the South-Pacific nation’s notes.

Thursday’s AOFM announcement, and the market’s reaction, underscores that theme.

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