The Kangaroo Bond Market

Australian dollar-denominated bonds issued by non-resident entities in Australia are referred to as Kangaroo bonds and represent a significant share of the Australian bond market. Issuance has generally been dominated by highly rated issuers such as supranational and quasi-sovereign agency entities; more recently there has been an increase in non-financial corporate issuance, albeit from a low base. Kangaroo bond issuance has increased substantially since the early 2000s, supported by the global demand for highly rated and relatively high-yielding Australian dollar-denominated assets. Kangaroo bonds have been attractive to non-resident issuers as they enable non-residents to diversify their funding bases and have relatively favourable issuance costs (including hedging costs) compared with issuance in other currencies. Kangaroo issuers play an important role in the cross-currency swap market because, by converting the Australian dollars they raise into foreign currency, they act as indirect counterparties for Australian corporations looking to convert funds raised offshore into Australian dollars.