SYDNEY • Australia's government yesterday sold A$9.3 billion (S$9.9 billion) of notes maturing in December 2021, its biggest-ever bond transaction.

The offering was snapped up by investors even as doubts swirl about the country's top credit rating and the government's ability to rein in its budget deficit.

While credit assessors refrained from taking any action following December's mid-year budget update, S&P Global Ratings has had a negative outlook on the country since July.

The new securities were priced to yield 2.24 per cent, the Australian Office of Financial Management said. Their sale eclipses the A$7.6 billion raised by the authority's debut 30-year deal in October.

The funding arm is also buying back A$655 million of July 2017 bonds and A$2.41 billion of January 2018 debt in conjunction with the deal.

"Early indications were that it was going to be a popular bond and it came a touch cheap, so investors were happy to participate," said fixed-income strategist Michael Turner at Royal Bank of Canada in Sydney.

The sale follows a recovery in buyer appetite for debt that has brought three-year bond yields down after the sell-off in global debt markets took them as high as 2.07 per cent in December. The rate slid 1 basis point yesterday to 1.97 per cent.

The 2021 transaction is a "pretty good deal" for buyers and the issuer, said interest-rate strategist Martin Whetton at Australia & New Zealand Banking Group, one of the banks managing the sale. "That part of the curve in other markets has settled down, the sell-off has stopped."

The new bond will eventually roll into the basket of securities underpinning the ASX three- year futures contract that is, along with similar 10-year and 20-year products, a major fixed- income derivative Down Under.

Volume on the three-year contract topped 200,000 yesterday for the first time in more than a month and was about double the average daily volume of the previous five days.

BLOOMBERG