(Bloomberg) – While bets on steep yield curves are increasingly popular, money can also be made in countries that already have it and that is pulling investors down.

Thanks to Australia’s yield-curve control policy, its bonds have the sharpest curves among the main markets, according to data records for two and 10 years collected by Bloomberg. Investors can exploit this difference by borrowing at lower short-term interest rates and investing on higher curves.

For example, a trader can use a “carry and roll” strategy, borrow for a short period of time at a relatively cheaper price and place the proceeds into long-term bonds with higher yields. Players then get a “carry” from the bond coupon and a “roll” from their capital appreciation as the note slides down the curve to maturity. The steeper the yield curve, the greater the chance.

“What I have learned from Australia is that yield curve control policies that target short-term results can improve curves over time and make debt attractive,” said Akira Takei, a global fixed income money manager based in Tokyo at Asset Management One. “Investing in the bond market where steep curves like Australia generally turn out to be a winning bet.”

The spread between two and 10-year Australian bonds was 64 basis points on Monday, compared to 46 basis points in the US and only 16 basis points in Japan. The carry and roll strategy works best if prices remain little changed, and differs from so-called steep steep bets where traders expect longer results to continue to rise.

Australia’s steep curve is the result of two factors. The first is an increase in bond issuance to fund government fiscal stimulus, which puts upward pressure on longer bond yields. The second is the Reserve Bank of Australia’s yield curve control policy which keeps the three-year yield anchored at 0.25%.

Japanese investors in particular jumped at opportunities in the Australian market. Funds from the Asian country bought $ 6 billion of Aussie debt in May, the biggest data back in 2005, according to the Ministry of Finance’s balance of payments report earlier this month.

Like other large markets, the Australian government has increased bond sales to fund stimulus measures to tackle the coronavirus pandemic. Already have two record-breaking debt sales this year. On Tuesday, he sold A $ 17 billion ($ 11.8 billion) of bonds maturing in 2025, which saw increased demand from hedge funds and the central bank.

“The relative steepness of the ACGB curve has attracted strong investor demand,” wrote strategists at Australia & New Zealand Banking Group Ltd. including David Plank writing on Wednesday. That should limit the rise in 10-year country yields relative to the US Treasury, they said.

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