Aussie bonds surge like it's 1991 without recession driver

By Candice Zachariahs
Updated February 11 2016 - 12:18pm, first published 11:25am
Bonds are giving investors a flashback to 1991, when Bob Hawke and his Treasurer Paul Keating battled Australia's last recession. Photo: Peter Morris
Bonds are giving investors a flashback to 1991, when Bob Hawke and his Treasurer Paul Keating battled Australia's last recession. Photo: Peter Morris

Australian bonds are having their best start to a year since the economy was last in recession in 1991 as concerns about Chinese currency devaluations, banking stability and a US economic slowdown drive investors to the safest assets.

The nation's benchmark 10-year yield has dropped 47 basis points since December 31 to 2.41 per cent as of 5 pm on Wednesday in Sydney. It sank Tuesday by the most since 2013. Government debt hasn't had this kind of start to a year since the recession a quarter of a century ago that helped push unemployment to a peak of more than 10 per cent and caused a number of local financial institutions to fail.

While robust job creation and buoyant consumer confidence suggest the economy is unlikely to slide into recession, growth remains susceptible to collapsing commodity and equity prices and a significant slowdown in China, Australia's top trading partner. The nation's also exposed to global financial sector risks, which have figured prominently for investors in recent days amid questions about Deutsche Bank's ability to pay coupons on its riskiest bonds.

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