Australian Dollar Bond Market's Recovery May Be Short-Lived

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Australian Dollar Bond Market's Recovery May Be Short-Lived

Reports that the Australian dollar bond market has recovered from the announcement that offshore financings no longer would be exempt from a 10% withholding tax may be misleading. Several market sources say investors would do well to stay out of the market until the currency has been stable a month, and until the new budget is out.

The July 1 announcement by Paul Keating, the Australian treasurer, sent the market into a 40-basis-point plunge. Australian currency also cost 1 1/2% in value. "The market reacted so strongly to the news in part because it came on top of a generally more negative attitude toward Australian debt,' said a bond trader in London, who noted that the Australian dollar already had dropped …