guy debelle : the australian bond market in 2011 and beyond speech by mr guy debelle, assistant governor of the reserve bank of australia, at the kanganews australian dcm summit, sydney, 15 march 2011. * * * today i will discuss the current structure of the australian bond market and talk about some trends that might influence its evolution in the coming years. i will focus on the bank debt and kangaroo markets, given the theme of this conference. i will also address some of the issues surrounding the implementation of the forthcoming basel liquidity standard. overview to set the scene, relative to the size of the australian economy, the australian bond market is around the average for developed economies ( table 1 ). however, unlike in many countries around the world today, the private debt market is significantly larger than the public market. this reflects the prudent fiscal policy pursued by both sides of politics, at the federal and state level, over an extended period of time ( graph 1 ). bis central bankers ’ speeches graph 1 structure of the australian non - government debt market the non - government debt market in australia consists of four categories of issuers : financial institutions, other corporate issuers, asset - backed issuers and non - resident kangaroo issuers. as can be seen in graph 2, while all four segments of the market have grown over time, the development of the market has not been uniform : financial institutions have for some time had the largest share of issuance ; asset - backed issuance grew rapidly during the early 2000s, but its growth was severely affected by the financial crisis ; corporate issuance has grown steadily over the past two decades ; more recently, strong demand for australian - dollar assets has seen rapid issuance of australian - dollar debt by non - residents. i ’ d like to touch briefly on the main drivers of developments in each of these markets and talk about some of the potential factors affecting future issuance. bis central bankers ’ speeches graph 2 financials over much of the past two decades, demand for credit outpaced the growth in deposits, so that banks accessed wholesale funding markets to support growth in lending. this outcome reflected a number of factors. australia ’ s relatively high level of investment, and the sustained growth momentum of the economy over the past two decades, underpinned the demand for credit. while the source of the demand for credit shifted between household and business sectors, from the early 1990s recovery until the financial crisis, aggregate credit growth was sustained at a rate of

past year and similar growth is expected over the next couple of years. if this expected growth eventuates, the mining - related sector ’ s share of gdp will continue to increase and there will be strong jobs growth both directly in resource extraction and processing and in a wide range of ancillary activities. indeed, it would not be surprising if, over the next few years, growth in mining - related employment, broadly defined, was as high as one - half of the total growth in the australian workforce. if these broad forecasts for the mining - related sector come to be realised, then employment growth in the non - mining - related part of the economy averaging around ¾ to 1 per cent a year is likely to be needed to maintain the unemployment rate around its current level. the rate of growth in output in the non - mining - related economy would then depend upon the rate these figures exclude the boost to australia ’ s real income, as opposed to output, from the rise in the terms of trade. if this rise had not occurred and instead the terms of trade over recent years were equal to their average during the 1990s, real income in australia would be around 15 per cent lower than it currently is. this is a very big effect and it is in addition to the current boost to output that is occurring because of the investment phase of the boom. bis central bankers ’ speeches of productivity growth. if, for example, growth in labour productivity were to average 1 to 1¼ per cent per annum, then non - mining output might be expected to grow by around 2 per cent per year on average. this is above the recent rate of growth of the non - mining economy – which we estimate to be a bit less than 1 per cent – but below the long - term average of a bit over 3 per cent. there are, of course, a wide range of other scenarios and these calculations are best thought of as a guide to what broad configuration of output growth might be possible given the supply - side constraints. inevitably, there are a number of uncertainties, foremost amongst which are the future rate of productivity growth in the non - mining economy and the ability of the labour market to effectively match workers with the new employment opportunities that are being created. these are both issues that we will need to watch carefully over the period ahead as we continue to assess the balance between supply and demand in various parts of the economy. the overall conclusion from this work is that given the huge pipeline of mining investment and the