Australian government debt issued at negative rate for the first time

15/12/2020 - Sam Green

Earlier this month the Australian Office of Financial Management, who manages the government’s debt issues, offered $1.5 billion of March treasury notes. The offering was heavily oversubscribed and the average bid accepted implied a yield on the notes of 0.01%, a pretty low yield under any circumstances.

However, one of the bids accepted was for an even lower yield. For the first time ever, someone has paid the Australian government to borrow money.

One investor, possibly from Japan, has purchase at least $1 million in Australian government debt at an interest rate of -0.1%.

While this may seem illogical, the transaction was likely part of a grander trading strategy and may have locked in a profit for the investor overall.

Regardless, it is a sign of the times with regards to government debt. For the past 30 years, yields on government debt have been trending lower on average and it seems that this trend has not stopped as yields hit zero percent.

This has huge implications for risk asset prices, yields on deposits, mortgage rates, and many other important parts of our lives.

One asset that is heavily driven by low interest rates is gold. Gold becomes increasingly attractive as interest rates fall, as it earnings no inherent yield itself. This means that if interest rates are high, there is a large opportunity cost to holding gold compared to holding a cash deposit.

However, if interest rates are negative there is a strong incentive to hold assets other than cash, which makes often drives price gains in gold and other risk assets.

It is true that in the short-term, the roll-out of the vaccine and hopes for a return to economic normalcy have dented the price of gold. However, we believe that these short-term sentiment factors will be outweighed by the continued bullish fundamentals of gold; low interest rates and plenty of government spending and borrowing.

We believe the best way to gain exposure to gold is through Australian gold miners, as they are leveraged to the gold price, frequently pay a dividend, and most still profit even if gold prices fall.

We have put together a portfolio of what we believe to be the most attractive gold miners on the Australian market. Australia is a fantastic gold mining location, with large gold reserves, strong corporate governance, and highly rated mining jurisdictions.

If you are interested in hearing more about our management process or the gold space in general, please watch our special presentation: Opportunities in the Gold Space. You can also view more information at or you can call us on 03 8080 5777.

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