4 Billion Australian Dollars Flow into Bond Funds
As fears grow over an overheating in artificial intelligence (AI) investments, Australia's safe and high-yield sovereign bond market is emerging as an investment haven.
Panoramic view of the Sydney Opera House, Australia. Wikipedia
According to U.S. investment research firm Morningstar on the 26th, capital inflows into Australian bond funds exceeded 4 billion Australian dollars (about 4.0063 trillion won) last year. This is the largest amount in four years.
Nick Ferres, chief investment officer at Vantage Point Asset Management, which oversees about $2 billion is buying Australian bonds. Australian bonds now account for one-third of Ferres's portfolio.
In an interview with Bloomberg, CIO Ferres said, "This is the most defensive stance I have taken in my investment career," warning that "if the AI bubble in big tech companies bursts, a rapid sell-off will hit markets across Asia." He added, "Among Australian government bonds, short-term bonds will become the new safe asset."
Bloomberg analyzed that, unlike the United States or some Asian countries, the Australian market is centered on banks and resource-related industries, which leaves it less exposed to volatility stemming from the AI boom.
In particular, the yield on Australia's 10-year government bond stands at 4.72%, one of the highest levels among developed markets. The Reserve Bank of Australia (RBA) was the first among major economies to raise interest rates this year. Markets are now pricing in the possibility of further hikes to curb inflation. Due to the RBA's tightening cycle, the yield on Australia's 10-year bond has risen by 60 basis points (1 bp = 0.01 percentage point) since October last year. The yield gap with U.S. Treasuries has widened to its largest in three years.
Bloomberg also reported a positive outlook not only for bonds but for the Australian dollar. Hedge funds are showing their strongest buying interest in eight years, and asset managers have shifted to a net long position for the first time since October 2024.
Adam Bowe, head of Australian portfolio management at PIMCO, said, "High yields, a AAA sovereign credit rating, a stable government and fiscal outlook, and a strong rule of law are making Australia an attractive investment destination."
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