The Role of Foreign Bond Issuance: The Case of Australia

We examined the recent development of the foreign bond-termed Kangaroo bond-market in Australia. Overwhelmingly, issuers in this market are of high credit quality and comprise sovereign, supranational and major international financial institutions. Local institutional investors have a preference for simple, fixed-rate pricing structures, with foreign issuers reliant upon converting their Australian dollar-denominated bond proceeds into the currency and coupon type of choice using cross-currency swaps. The Kangaroo bond issuers provide a natural counterparty to Australian residents issuing in foreign currency in offshore markets, where cross-currency swaps allow them to easily convert their proceeds into Australian dollars.