liquid, and that will also affect their pricing vis - a - vis private sector debt. 2 for further discussion of this point, see rba ( 2018 ), ‘ box a : the period of low volatility in financial markets ’, statement on monetary policy, february, pp 25 – 26. 3 debelle g ( 2017 ), ‘ recent trends in australian capital flows ’, address to the australian financial reviewbanking and wealth summit, sydney, 6 april. 4 the data in graph 2 show that the outstanding stock has fallen in overseas markets recently. these data include the effect of issuance and maturities of bonds, as well as exchange rate movements and bond buybacks. 5 if the market is accounted for by only one player, this index is 1. if, on the other hand, n participants each have an equal share of the market, the index is 1 / n. 6 kent c ( 2017 ), ‘ fixed income markets and the economy ’, address to bloomberg, sydney, 9 august. 7 arsov i, b shanahan and t williams ( 2013 ), ‘ funding the australian resources investment boom ’, rba bulletin, march, pp 51 – 61. 8 for example, see davidson l ( 2018 ), ‘ taking stock ’, kanganews, dec 17 / jan 18, pp 12 – 13. available at < http : / / www. kanganews. com / document / magazines / 2017 / 2017 - dec - jan / 141 - kndecjan17column >. 9 see, for example, rba ( 2017 ), financial stability review, october. 10 the rmbs spreads are shown relative to bbsw, which is not a risk - free benchmark. calculating spreads to australian government securities is difficult given the pre - payment uncertainty of rmbs, nonetheless, when we attempt to do so, we get a similar picture as emerges in graph 12. 11 lowe p ( 2017 ), ‘ household debt, housing prices and resilience ’, address to economic society of australia ( qld ) business lunch, brisbane, 4 may. 12 kent c ( 2017 ), ‘ fixed income markets and the economy ’, address to bloomberg, sydney, 9 august. 15 / 15 bis central bankers'speeches

of the story may be that uncertainty has declined. this has been most evident in the low levels of financial market volatility observed last year and early this year. that suggests that market participants are more confident about their forecasts of the future. a sense of greater certainty is consistent with the reduction in the variability of many key macroeconomic indicators, which has been accompanied by a decline in revisions to analysts ’ forecasts of these variables. 2 yet another possible reason for the low spreads is that financial market participants appear to be willing to take on risks at lower levels of compensation. in other words, the price of risk may have declined. this could be as a consequence of a few developments. importantly, accommodative monetary policies have provided investors with an incentive to take more risk so as to achieve a reasonable rate of return. as investors take on more risk, they will tend to bid down its price – as captured by spreads, for example. this is the search for yield that we hear about a lot. why does this matter for australia? so what is the relevance of the decline in spreads on offshore fixed income assets for australian markets? first, it matters because many of our corporations issue overseas. this offshore issuance facilitates capital inflows, which are the financial counterpart to australia ’ s current account deficit. 3 2 / 15 bis central bankers'speeches most bonds issued by australian companies are issued offshore, whether they are financial or non - financial companies ( graph 2 ). for non - financial companies, the influence of mining firms in this market had been significant over recent years. overseas issuance is quite natural for miners operating in australia because their revenue streams are often denominated in foreign currencies. second, the decline in spreads offshore also matters because they are highly correlated with spreads in the domestic market ( graph 3 ). for example, spreads on bonds issued by australian banks in the australian market have a strong relationship with the spreads faced by us corporations. the same is true for spreads on bonds issued by non - residents in the australian market ( so called ‘ kangaroo bonds ’ ). this should not be that surprising because the market for capital is a global one. if the price of risk in australia were to deviate too far from the global price – beyond that suggested by any differences in fundamental credit quality – there would be opportunities for profitable arbitrage. one way or another, the process of arbitrage would lead to a degree of convergence between spreads. 3 /