Australia's bonds, caught up in the global fixed-income selloff, have seen their yields rise more than any of their peers in the past month, despite arguments that the country's finances are in much better shape. Fund managers say there are reasons for the market to recover.

Australia is one of the few countries with AAA ratings from all three major agencies. The central bank is working to contain inflation, and government debt levels relative to the size of the economy are well below those of peers such as the US and UK.

These factors suggest Australian bonds may be positioned for a rebound after the recent selloff. With yields rising more sharply than other developed-market peers, the relative value argument is drawing attention from global fund managers.

The combination of top-tier credit ratings, an inflation-fighting mandate, and lower debt-to-GDP compared with major economies could provide a foundation for recovery in Australia's debt market.