Australia Gets Negative Yield at Sale of Inflation-Linked Bonds
Australia sold inflation-linked notes at an average yield below zero for the first time, as gains in crude oil and a drop in the local currency underscored the allure of debt offering protection versus consumer-price gains.
The government sold A$200 million ($152 million) of 1 percent indexed bonds due in November 2018 at an average yield of minus 0.076 percent on Tuesday, the Australian Office of Financial Management said on its website. With the yield on similar conventional debt at around 1.74 percent and the principal adjusted for consumer-price gains, the result signals bets inflation will accelerate from the 1.7 percent annual pace recorded in the fourth quarter of 2014.
The Australian dollar has weakened 7 percent this year, adding to the potential for higher prices on imported goods. Crude oil has rebounded over the past month, undermining prospects that last year’s decline in fuel prices will have a lasting impact on inflation.
“The headline rate may go up because of oil prices going up or the Australian dollar coming down,” said Roger Bridges, the chief global strategist for interest rates and currencies at Nikko Asset Management Australia in Sydney. “The nominal yield has gone to a level way below what people think inflation’s going to be. It makes real assets look attractive.”
The company bought some of the bonds, Bridges said. It oversees the equivalent of $18.3 billion.
Ten-year break-even rates show expectations for 2.21 percent, which is higher than Australian yields on bonds due in as long as seven years.
The AOFM received A$925 million of bids for the bonds, or 4.625 times the amount offered. That was the highest bid-to- cover ratio for a sale of inflation-linked debt since the last offering of 2018 notes on Feb. 24. Even the worst bid was at negative 0.015 percent. Including Tuesday’s sale, the last eight auctions of indexed bonds have attracted bids for more than four times the securities offered.
The post Australia Gets Negative Yield at Sale of Inflation-Linked Bonds appeared first on The Jakarta Globe.