Why the Australian credit market can be an attractive investment destination

While the Australian credit market might still be relatively small globally, it presents a compelling investment opportunity, opines QIC, a government-owned investment company from Australia.

“The Australian investment grade (IG) credit market currently presents a particularly compelling opportunity for offshore investors, as AUD credit spreads remain relatively wide despite the significant tightening of credit spreads in other major developed markets,” wrote QIC in an insight published in June.

The investment company argues that while AUD credit spreads have tightened significantly since the wide levels of 2022 and early 2023, the performance has not kept pace with the recent strength in USD credit. This disparity makes shifting into AUD-denominated credit increasingly compelling, with spreads nearly double those of US spreads.

“In a further demonstration of the relative attractiveness compared with USD and EUR credit, AUD is now the only market where credit benchmark yields are meaningfully above cash rates. While inverted yield curves based on rate cut expectations will be a factor, this differential makes the Australian market an appealing destination for long-term yield-focused investors and, in our view, is likely to support spread performance moving forward,” QIC added.

The investment company further highlights Australia’s robust governance standards and strong economic fundamentals that profit the Australian dollar. “This stability is a key factor for investors seeking to minimise currency risk in their international investments,” opines QIC.