[SYDNEY] Australia sold a record A$9.3 billion (S$10 billion) of debt this week thanks to strong demand, with investors unfazed by risks the nation might lose its triple-A rating due to protracted budget deficits.

With around 60 investors on board, the five-year offer received more than A$15 billion in bids at the final price, allowing the government to pay a margin at the lower end of the marketing range.

The issue was priced at 23 basis points over the yield implied by 3-year bond futures, and the initial spread was 22 to 25 basis points. The bonds mature on Dec 21, 2021.

"We thought A$7 billion to A$8 billion would be a reasonable size, so it was a good outcome," Robert Nicholl, chief executive of the Australian Office of Financial Management (AOFM) said on Thursday.

AOFM, the federal government's funding agency, hired ANZ Bank, Citi, UBS and Westpac to jointly manage the sale.

The offer even beat the government's A$7.6 billion 30-year bond debut in October, then a record.

Around 70 per cent of the new paper was sold in Australia, the AOFM said. By type of investors, banks accounted for more than half, fund managers took 28 per cent of the total issue and hedge funds 12 per cent.

Mr Nicholl said he was particularly pleased with participation of foreign central banks, which took 4 per cent of the book. "We had not seen that in a while and shows their interest for the five-year part of the curve," he said.

STILL ATTRACTIVE

About 30 per cent of the bonds were sold offshore, with Asia taking the lion's share, followed by Europe, the UK, North America and Japan.

Supporting demand was the issue's attractive yield of 2.24 per cent, far above sub-zero returns in Japan, Germany and France and just 0.5 per cent in the UK.

James Alexander, head of fixed income at Nikko Asset Management, said the issue size showed investors shrugged off the danger of a sovereign ratings downgrade.

Last year, S&P Global Ratings warned of a downgrade to Australia's coveted triple-A credit rating if the government couldn't put its fiscal house in order by May, when the annual budget is unveiled.

"Even if it is downgraded to double-A plus, it is a minor difference," Mr Alexander said. "Australia is still an attractive place to invest with a strong and diverse economy, the rule of law and a good institutional framework."

Mr Alexander, who manages A$11 billion in fixed income, said he thought it likely the rating would be cut after May.

Australia has A$466 billion of debt outstanding and is one of only a dozen countries rated triple-A by S&P and Moody's.

REUTERS