Treasury Issues Notes At Negative Yield For The First Time

By Glenn Dyer | More Articles by Glenn Dyer

No, Australian interest rates are not going to follow yields in some markets offshore (Japan and Germany for example) into negative territory despite part of a $1.5 billion short term Treasury note issue being sold for the first time at a negative yield.

Australia has joined the world of negative interest rates with investors buying $550 million of the $1.5 billion of four-month Treasury notes on Thursday at yield of minus 0.01%.

That was 37% of the $1.5 billion in notes offered – they mature on March 26 next year by the Australian Office of Financial Management (AOFM), which oversees the federal government’s debt sales. It confirmed a surprise result on Thursday.

The sale saw the yield driven down by a surge in demand with offers of $8.2 billion received by the Office for the $1.5 billion notes offered.

It’s that high demand more than anything else saw the yield on part of the issue drop into negative territory.

That’s because investors are looking to park cash somewhere for some tiny yield.
There were 58 bids received with the highest bid 0.07%. The lowest was minus 0.01%.

The AOFM sold 37% of the debt at the minus yield of 0.01%. The highest yield accepted was 0.015%. The AOFM said the average yield on the $1.5 billion issue was 0.0285%.

That was very different to the results of a similar issue with a March 26 maturity date (but one week smaller) the previous Thursday when the number of bids received was 28 (nearly half the 54 for yesterday’s) and the average yield was 0.0332%.

The lowest yield accepted was 0.010%. 39.5% of the $1.5 billion was issued at that rate. The total value of bids for the issue was $5.8 billion, substantially less than yesterday’s level of $8.2 billion.

A separate tender on Thursday for $500 million, to be repaid in July next year, attracted a low bid of 0.01%. But the average yield across this issue was 0.0323%.

There were only 34 bids received for this offer, indicating the timing (July maturity in the 2021-22 financial year) was not as attractive as the March 26 maturity date for the $1.5 billion issue.

Still the coverage ratio on this issue (the value of bids received for the size of the offer) was slightly higher than that for the $1.5 billion issue.

Government bonds indexed to inflation have been sold occasionally at negative rates but this is the first time a Treasury note, where the interest rate is fixed, has been sold at a negative level.

And despite Standard &Poor’s downgrading the credit ratings of NSW and Victoria earlier in the week, the ultra low yields an high level of interest confirm that ratings do not drive investors like they used to,

The small negative yield though does underline the continuing problems the Reserve Bank is having in dropping yields on 10 year bonds.

They finished at 0.98% on Thursday, down from 1.02% on Wednesday and still too high for comfort as the high yield helps support the current ‘high’ value of the Aussie dollar above 74 cents.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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