Chart of the Month - February 2026

In 2025, Australia was the third-largest bond market globally with a total issuance of AUD 320 billion. 2026 could be even bigger. Through 27 January, AUD bond issuance has set a record pace this year, with over AUD 50.7 billion issued (see chart below). This is an increase of 63% compared to the same period in 2025 and is outpacing growth in Asia-Pacific dollar bonds (20%) and euro bonds (18%).

The big driver of the growth is AUD bonds issued in Australia by non-residents (kangaroo bonds). As concerns continue to cloud the USD, the attractiveness of the Australian debt market is shining even brighter.

The rise of kangaroo bonds

The first kangaroo bond was issued by Credit Local de France (now part of Dexia) in 1991. While Australia boasted a strong regulatory environment and good infrastructure even back then, non-resident issuers also loved that they enjoyed a positive arbitrage on swapping Australian dollars raised back into their home currencies. The arbitrage existed because of the large volume of funds raised by Australian banks and companies overseas and then converted back into AUD - the demand for AUD was so strong.

Until 2004, AUD bonds issued overseas overshadowed ‌kangaroo bonds. In particular, there was strong demand from rich Japanese investors in the uridashi market. These investors loved the higher interest rates of countries such as Brazil, South Africa, and Australia.

After 2004, kangaroo bond issuance grew strongly as American and European banks looked to diversify their funding sources and began to issue in Australia. Their issuance dipped during the global financial crisis, but then issuance by sovereign and quasi-sovereign agencies picked up (see chart below).

After the global financial crisis in 2007-08, the resilience of the Australian financial system made it an even more attractive destination for foreign banks and agencies to issue in AUD in Australia.

What’s behind the strong recent growth?

Over the last three years, the growth in kangaroo bonds has shifted into a higher gear. Increased liquidity and the advent of 10-year kangaroo bonds have shown the maturity of the Australian bond market, which has brought it to the attention of new foreign issuers. The kangaroo bond market has entered a virtuous growth loop. 

“The Aussie market has always been a good bond market. Now we’re hitting additional maturity milestones—volume, depth, liquidity, and increased investor diversity." Sam Dorri, Canadian Pension Plan, managing director, balance sheet optimization & financing.

2025 also saw a global retreat from USD-denominated assets. From tariffs to sovereign credit downgrades, the USD lost some of its lustre. As a result, international investors increased their interest in kangaroo bonds, and issuers are following the demand. What is there not to like about Australia’s AAA sovereign credit rating?

As for the increase in issuance in January, investors are keen to snap up kangaroo bonds because they see that Australian interest rates are rising again, while most other advanced economies, including the US, are still cutting rates. 

The RBA raised interest rates by 25 bps at its first meeting for the year on 3 February and is likely to raise rates again in the first half of 2026. Inflation picked up in the second-half of 2025, and data released in January confirmed it is being driven by an economy running a little too hot rather than by temporary factors.

The recent weakening of the USD against the AUD and other major currencies also increased the demand for kangaroo bonds at the start of 2026, as shown by the falling yield spread between Australian and US sovereign bonds (see chart below). Once again foreign issuers are happy to meet this demand.

Source: MacroMicro

Final thoughts

The growth in kangaroo bonds is an advertisement for the sophistication of the Australian financial markets and their world-class regulation. The uptick in growth at the start of this year shows investors are looking to capitalise on higher interest rates in Australia and see Australia as a haven in an uncertain world. Issuers are happy to meet this demand. Now, if Australian superannuation funds start investing in kangaroo bonds on any sort of large scale, the boost will be enormous.