From Nomura:
For global investors, once again the high term rate structure and strong credit ratings of markets like Australia and New Zealand should appear attractive to global money. Significantly too, given Japanese lifers appear to be lowering their hedge ratio for foreign bonds even further, the potential for an acceleration of flows into the AUD market is something we believe investors should be aware of.
On our recent trip to Europe we noted that ownership of AUD securities had become deeper and more sophisticated. Investors we met with who held cash market securities in Australia continue to be attracted by liquidity and credit ratings, but importantly, higher yields. This held particularly true compared to the alternatives available in the Eurozone. While this does not take into account financing costs (for some investors), optically AUD yields remain high.
Of critical importance will be flows from Japanese investors over the coming months. After a strong rebound into European assets in 2013, early indications show that Japanese investors have continued to shift their assets from JGBs into European markets, as well as into US Treasuries and markets such as Australia.