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Nice Work If You Can Get IT

Posted by: Michael Smith | 16 March, 2009 - 12:31 PM

The Federal Government is borrowing like topsy to pay for its spending on gifts of cash to all and sundry – including 69,000 people who live in other countries. They’re also spending up big on foreign aid - like the $1.75 KEV “loan” to Indonesia we spoke about a week or so ago.

The Australian banks are among the institutions buying up Kev’s bonds - here are some of the issues over the past few weeks – with thanks to Stephen Mayne of the Mayne Report.

Wednesday, March 11: $600m tender for eight year bonds expiring in February 2017 were sold for an average yield of 4.18% and was 3 times over-subscribed.

Friday, March 6: $600m tender for 5 year Commonwealth bonds expiring in June 2014 were sold for an average yield of 3.71% and was 3.1 times over-subscribed.

Wednesday, March 4: $600m tender for 2 year Commonwealth bonds expiring in April 2012 were sold for an average yield of 3.30% and was 3.9 times over-subscribed.

Friday, February 27: $600m tender for 12 year Commonwealth bonds expiring in May 2021 were sold for an average yield of 4.52% and was 3.9 times over-subscribed.

Wednesday, February 25: $600m tender for 4 year Commonwealth bonds expiring in May 2013 were sold for an average yield of 3.48% and was 4.1 times over-subscribed.

Friday, February 20: $600m tender for 2 year Commonwealth bonds expiring in June 2011 were sold for an average yield of 2.93% and was 4.4 times over-subscribed.

Wednesday, February 18: $600m tender for 3 year Commonwealth bonds expiring in April 2012 were sold for an average yield of 2.98% and was 4.8 times over-subscribed.

Friday, February 13: $600m tender for 5 year bonds Commonwealth expiring in June 2014 were sold for an average yield of 3.69% and was 2.9 times over-subscribed.

Wednesday, February 11: $600m tender for 4 year bonds Commonwealth expiring in May 2013 were sold for an average yield of 3.46% and was 2.6 times over-subscribed.

Friday, February 6: $600m tender for 6 year bonds Commonwealth expiring in April 2015 were sold for an average yield of 3.91% and was 2.6 times over-subscribed.

Like I said, the Australian banks are among the institutions buying these bonds. Last October the Australian Government guaranteed the overseas borrowings of our banks. So they can borrow the money overseas, with the Government’s AAA+ credit rating, and then use that cheap money from overseas to buy the government’s own bonds. The banks are profiting very nicely from this arrangement – nice work if you can get it.

And the big issue for me is that the government has given so much – on a plate – to the banks with nothing in return. No cap on executive salaries. The banks are free to send Australian jobs overseas, just like the disgrace we’ve seen with the ANZ recently.

With friends like Kevin in Canberra this is a great time to be a banker. Shame about the mugs like us who are paying for it all!