Australian, N.Z. Dollars Slip on Lehman Bankruptcy Concerns

By Candice Zachariahs

Sept. 15 (Bloomberg) -- The Australian and New Zealand dollars approached two-year lows against the yen as concern Lehman Brother Holding Inc. will file for bankruptcy damped investor appetite for higher-yielding assets.

The currencies, favorites of so-called carry trades, fell after Barclays Plc and Bank of America Corp. pulled out of talks with the U.S. securities firm. The local dollars weakened as banks and brokers began consolidating trades in which Lehman is involved to minimize the impact of a possible liquidation.

``With the Lehman bankruptcy news, risk appetite is going to be very weak,'' said Greg Gibbs, a currency strategist at ABN Amro Holdings NV in Sydney. ``The Aussie and Kiwi should be soft today,'' he said, referring to the currencies by their nicknames.

The Australian dollar dropped 1.7 percent to 87.33 yen at 12:25 p.m. in Sydney, from 88.88 in New York late last week. It fell to 82.27 U.S. cents from 82.36 cents late last week.

The New Zealand dollar slid 1.4 percent to 71.13 yen from 72.12 on Sept. 12. It bought 67.01 U.S. cents from 66.82 cents.

U.S. stock-index futures tumbled on concern a potential Lehman bankruptcy will add to banks' $514 billion of subprime- related losses.

``It's probably likely that a Lehman bankruptcy will weigh on equity markets, risk-appetite and high-yielding currencies such as the Australian dollar,'' John Kyriakopoulos, a currency strategist at National Australia Bank Ltd. in Sydney, wrote in a research note today.

Talks Over

Barclays, which had emerged as a leading candidate to acquire Lehman, pulled out first, contending it couldn't obtain guarantees from the government or other Wall Street firms to protect against potential losses on Lehman's assets. Bank of America withdrew about three hours later, according to a person with knowledge of the talks.

Lehman has lost 94 percent of its market value this year after record losses from investments tied to mortgages.

In carry trades, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the two. The risk is that currency market moves can erase those profits.

Benchmark interest rates are 7 percent in Australia and 7.5 percent in New Zealand, compared with 2 percent in the U.S. and 0.5 percent in Japan.

Australian government bonds gained. The yield on the 10-year note fell 8 basis points, or 0.08 percentage point, to 5.595 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.649, or A$6.49 per A$1,000 face amount, to 97.289. Bond yields move inversely to prices.

New Zealand's government debt rose. The yield on the 10- year benchmark bond fell 3 basis points to 5.975 percent. The price of the 6 percent security due in December 2017 increased 0.225, or NZ$2.25 per NZ$1,000 face amount, to 101.441.

To contact the reporter on this story: Candice Zachariahs in Sydney at Czachariahs2@bloomberg.net