30 year bond rate history

However, the final yield is only likely to emerge once the transaction is formally priced on Wednesday.

Reducing risk

Late last week, the AOFM appointed a panel of six banks to 'lead manage' the transaction - ANZ, Citi, Commonwealth Bank, Deutsche Bank and Westpac.

The 30-year bond is part of the AOFM's long-term strategy to issue longer-term debt to reduce the refinancing risk of the government debt by pushing debt maturities into the future while reducing the impact of changing interest rates on the federal government's funding cost.

While longer term debt is more expensive than short-term debt as investors demand higher compensation for taking on more interest rate risk, extending the debt maturity profile is regarded as prudent financing because it reduces the amount of debt the government needs to refinance on any given year.

Since 2009 the government has extended the average maturity of its debt from 5.10 years to 7 years while the cost of debt has fallen from 5.20 per cent to 3.50 per cent even as it has expanded it programme significantly.

Mr Nicholl said its annual funding task had been set at around $93 billion achieved by several large "syndicated" bond placements and regular auctions held throughout the year.

Strong demand for issue

The deal comes as bonds come under pressure as traders reassess central bank's commitment to negative interest rate policies. Long-term yields, however, remain low and close to zero in several major bond markets, while shorter term debt rates remain negative.

One trader described the offer as "cheap" and expected strong demand for the issue. The long-term, AAA-rated bond is likely to attract life insurance companies from around the world, keen to match long term liabilities with highly rated fixed income securities. Hedge funds too will no doubt be fighting for allocations.

Long term Australian bonds have proved an effective way to hedge against the risks of a slowing Chinese economy and the assumption that this would have a dampening impact on the Australian economy and force interest rates lower.

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