Australia T-Note Ylds At Record Low As RBA Cut Expectations Grow

By Sophia Rodrigues

Australian Treasury-Note yields fell to a record low at the tenders Thursday reflecting increased expectations of a cut in the Reserve Bank of Australia’s cash rate and ample liquidity.

The weighted average yield on the 29 January 2021 Note fell to 0.1% compared with 0.1333% for the same Note at last week’s tender.

The weighted average yield on the 23 July 2021 Note came in at 0.1211%. This is the first time the June 2021 Note has been issued, so the closest comparison is the 25 June 2021 Note where the yield was 0.1610% at last week’s tender.

Both the highest and lowest accepted yield on the 10 bids accepted for the January Note was 0.1% and the coverage ratio was 5.2 times, indicating strong demand for the Note.

In case of the July 2021 Note, the gap between the highest (0.13%) and lowest (0.105%) accepted yield was wider and might be an indication that yields could fall further at future tenders.


Investors initially showed resistance for lower yields because of the illiquid nature of Notes in Australia but as liquidity increased and other investment options became less attractive, demand for Notes grew. Bidding at T-Note tenders also became competitive as further cut in the RBA cash rate began looking like a possibility.

Additionally, the Australian Office of Financial Management changed the bid format last month to allow maximum of four decimal places in whole multiple of 0.0050% from two allowed previously. This paved way for tighter and more competitive bidding at the tenders, facilitating further fall in yields and a narrowing in the gap between T-Note and BBSW.

In the early months following the cut in the RBA's cash rate target to 0.25% in March, weighted average yield on a 3-4 month Note was 0.17%-20% while on the longer-term Note of 9-10 month duration it was 24%-0.29%. 

The RBA is expected to lower the cash rate target further to 0.1% from 0.25%, along with a cut in the Term Funding Facility rate and the 3-year bond target, plus a cut in the rate on Exchange Settlement balances.