While Australian bonds have endured a sell-off in recent times, they are not overpriced say local fixed-income experts, responding to JP Morgan Chase's claims that bond prices are over-inflated.
On Tuesday night, the bank's chief executive Jamie Dimon said he wouldn't personally buy any long-term government debt, but stopped short of saying the bond market is on the cusp of collapse.
"I'm not going to call it a bubble, but I personally wouldn't be buying a 10-year sovereign debt anywhere in the world," he told CNBC.
But Australian bond investors say, rather than being overvalued, the average spread above the cash rate suggests Commonwealth debt might offer some value.
Australian 10-year yields are currently at 2.65 per cent, 115 basis points above the cash rate.
"Historically, that's quite a lot," Charles Jamieson, executive director at Jamieson Coote Bonds, said.
"The average spread above the cash rate over the last 20 years is more around 50 basis points, so bonds are actually showing signs of offering some value."
US bonds near record low
The yield on the benchmark 15-year note, which moves inversely to its price, rose climbed half a basis point to 2.94 per cent on Wednesday and the yield on short-term two-year also traded one basis point higher at 1.80 per cent.
US bond yields have retraced recently on geopolitical concerns out of North korea.
The yield on the 10-year government bond yield rose from 2.25 per cent, to a high of 2.29 per cent, before easing to 2.26 per cent.
The yield on the two-year bond yield rose from 1.35 per cent to 1.36 per cent , before retracing the gain.
Mr Dimon's comments came amid a broader discussion about global liquidity and central banks moving towards a tightening cycle.
Since December 2015, the Fed has approved four rate hikes, but US government bond yields remained mired near record lows, hampering by low volatility and global low inflation.
Over the past several months, the Fed has prepared markets for the upcoming effort to reduce the $US4.5 trillion it holds of mostly Treasurys and mortgage-backed securities.
Australian government debt has been a beneficiary of the global liquidity offered by central banks as they moved to support economies by buying up sovereign debt.
"International investors have purchased Aussie bonds for the yield compression trade," Martin Whetton, rates strategist at ANZ, said.
"And the currency has been a beneficiary, broadly speaking.
"So, if you're an offshore investor holding Australian debt and liquidity is withdrawn to some degree, am I still going to get the same return for my bonds?"
If the bond market isn't going to move and the currency falls, you're in danger, Mr Whetton said. But if yields rise because the US Fed and other central banks raise interest rates and the currency stays low, then perhaps it could be seen that Australian bonds are overvalued.
"But the current demographic of the world is leaning towards fixed-income investments, so we're not looking for bond-maggedon just yet," he said.
