Bond demand soars on interest rate forecast

AUSTRALIAN bonds are generating the strongest demand in three years on speculation the central bank will win room to hold record-low interest rates as treasurer Joe Hockey’s first budget focuses on deficit reduction.

Investors bid for an average 4.14 times the amount of sovereign debt auctioned from January to April, the strongest start to a year since 2011, data from the Australian Office of Financial Management show. A sale of June 2016 notes on April 4 had a so-called bid-to-cover ratio of 5.79, a level unseen since November 2012.

Government bonds have gained 2.5% in 2014, set for their best annual performance in three years.