Central Banks Buying Up AUD Bonds

Central banks are taking over as leading buyers of Australia's bonds after Japanese investors sold the securities at the fastest pace in at least eight years.

Investors from the Asian nation with the region's lowest benchmark yields capped three months of selling in January, when they offloaded a net 439.3 billion yen ($4.6 billion) in Australian dollar debt, the most since 2005, the Tokyo-based Ministry of Finance said March 8. Offshore investors bought A$13.1 billion ($13.4 billion) of Australian fixed-income securities, the world's highest-yielding AAA debt, in the four quarter including A$4.5 billion of sovereign paper, government data released in Sydney last week showed. The Bundesbank said last week the securities will play a role in its reserves.

Central banks managing as much as $7 trillion, including those in Germany, France and China, are holding Australian dollars, according to data compiled by Bloomberg and documents released by the nation's Reserve Bank. At the same time, prospects for Japan's return to growth buoyed sentiment among investors there, driving them away from top-rated Australian debt into riskier assets such as equities.