During December, Australian Government Bonds were issued at a negative interest rate for the first time. On 10 December 2020, the Australian Office for Financial Management held an auction for $1.5 billion of short-dated government bonds maturing on 26 March 2021. The auction was heavily over-subscribed with $8.2 billion of bids and the lowest bid accepted being minus 1bp (-0.01%).
The result is largely symbolic but confirms interest rates are effectively zero and the Australian Government can borrow for “free”. The issue is unlikely to have any major implications as it is only if and when banks start charging customers for holding their money are there likely to be major implications as customers withdraw their funds from negative interest rate accounts.
In late January, all the liquid Australian Government Bonds were trading at positive albeit low yields. The December 2021 issue was trading at a yield of 3.5bps and the July 2022 bond was trading at a yield of 5bps. More positively, the market is predicting a longer-term rise in interest rates and that rates are unlikely to go negative in the medium term. The yield curve is positive (upwardly sloping for increasing maturity) rising to a level of 1.03% for December 2030 and 1.07% by June 2031 (10 years). This strongly supports a conclusion interest rates will be at current rates close to “zero” for a long period of time and will then rise only gradually.