Kangaroo Bond

Overview

A kangaroo bond (also called a matilda bond) is a bond issued in the Australian market by a non-Australian entity and denominated in Australian dollars (AUD). It is subject to Australian securities regulation and gives foreign issuers access to Australian investors and funding in AUD.

How it works

• A foreign corporation, financial institution, or government issues debt in Australia, priced and paid in AUD.
• Proceeds may be used locally or converted into another currency the issuer needs.
• Issuers commonly use cross-currency swaps or other hedging instruments to manage the foreign-exchange exposure created by AUD-denominated obligations.
• Kangaroo bonds let issuers tap a different pool of investors and potentially take advantage of more favorable interest rates or market conditions in Australia.

Benefits

For issuers:
– Access to Australia’s investor base and deeper or alternative funding sources.
– Potentially lower borrowing costs if Australian interest rates are relatively low.
– Diversification of funding sources and currency exposures.

For Australian investors:
– Exposure to foreign issuers without direct currency risk, since coupons and principal are paid in AUD.
– Portfolio diversification and potential incremental yield versus domestic-only bonds.

Risks and hedging

• Issuers assume currency risk if they need funds in another currency; this is typically hedged using cross-currency swaps or related instruments.
• Credit, interest-rate, and liquidity risks remain similar to other corporate or sovereign bonds.
• Hedging reduces—but does not eliminate—foreign-exchange and basis risks.

Example

In January 2018 Emirates NBD priced a A$450 million 10‑year bond (part of a A$1.5 billion kangaroo program) with an indicative annual coupon of 4.75%. The issuer cited diversification of funding sources and market expansion as motives for the issuance.

Related foreign-bond types

Other examples of foreign bonds issued in a specific domestic market include:
– Samurai bonds
– Maple bonds
– Matador bonds
– Yankee bonds
– Bulldog bonds

Key takeaways

• Kangaroo bonds are AUD‑denominated bonds issued in Australia by non‑Australian entities.
• They provide issuers access to Australian capital and investors a way to hold foreign credit without direct currency exposure.
• Currency risk for issuers is commonly managed with cross‑currency swaps.