Subzero-Rates Club Swells With Spanish Debt and Australian Bills

(Bloomberg) -- Some investors who bought Australian bills and Spain’s benchmark bonds at auction are effectively paying the nations for holding their securities.

An auction of three-month Australian notes on Thursday saw an average yield of 0.01%, with buyers who bid most aggressively at the sale receiving a yield of minus 0.01%. The average rate on Spain’s 10-year debt was below zero for the first time on record.

Sub-zero yielding debt is increasing worldwide, with almost $18 trillion of investment grade bonds now having a rate below 0%. Portuguese 10-year bonds rallied to send their yields into negative territory this week, while the yield on their Spanish peers are trading within one basis point of the threshold.

With much of Europe under lockdown, fears over the economic impact are continuing to grow, raising the prospect of more monetary stimulus from the European Central Bank later on Thursday. Economists surveyed by Bloomberg expect the ECB to add 500 billion euros ($604 billion) to the pandemic purchase program, with Commerzbank AG forecasting an addition of 600 billion euros.

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Meanwhile, yields in Australia have been close to zero since the central bank cut benchmark rates to 0.1% to help counter the financial and economic impact of the coronavirus pandemic.

The development on Thursday is a symptom of the large amount of liquidity available to banks since the Reserve Bank of Australia introduced a three-year loan program for lenders. Known as the Term Funding Facility, it has seen almost A$84 billion ($63 billion) in borrowing so far, which has reduced the need for short-term funding from elsewhere.

It isn’t, however, a sign that investors see the central bank steering toward additional rate cuts. Swap markets pricing suggests that the policy rate will stay on hold until the end of next year and beyond.

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