Australia issues negative-yielding debt for first time
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Australia has sold short term treasury bills at a negative yield for the first time in its history, joining Japan and a raft of European nations that are being paid to borrow money from investors.
Investors snapped up A$1.5bn ($1.1bn) of three-month notes on Thursday at an average yield of 0.01 per cent, with some buyers at the auction receiving a yield of minus 0.1 per cent. Australian yields have been hovering close to zero since the central bank slashed its main interest rate to 0.1 per cent earlier this year to support the economy during the Covid-19 pandemic.
Analysts said the sale at a negative yield was likely a result of strong investor demand due to the surging Australian dollar, rather than a signal the country is moving rates to below zero anytime soon.
“This buying may have come from offshore, from an investor motivated by current extremely low FX hedging costs, which add to the attractiveness of Australian dollar securities,” said Andrew Ticehurst, an economist at Nomura.
The country’s currency surged past a two year high of almost $0.75 on Thursday against a backdrop of investor optimism about Australia’s economic recovery and iron ore prices topping $150 per tonne for the first time since 2013.
Australia is benefiting from China’s appetite for iron ore, as its main rival in supplying the steelmaking ingredient Brazil struggles due to Covid-19 infections and mine closures.
Mr Ticehurst said Australia’s highly rated, short term government securities were viewed by investors as a “super-safe defensive asset” in what could be an illiquid and volatile period over the festive season and due to uncertainty about Brexit and Covid-19 vaccine developments.
Demand for the A$1.5bn worth of March 26 T-notes auctioned by the Australian Office of Financial Management was strong, with the agency noting it was more than five times oversubscribed.
Australia’s inflation-linked government bonds have previously traded at negative yields before.
Shane Oliver, an economist at financial group AMP, said the negative yield on treasury bills was unusual as the Reserve Bank of Australia has previously said it is extraordinarily unlikely to take its cash rate below zero.
Given many other developed nations’ treasuries are currently trading in negative territory, some investors in those countries may view Australian government securities as a bargain, Mr Oliver added.
According to Bloomberg data, just over $17.8tn worth of debt globally currently yields negative interest.