T-Notes negative, cash follows

Ian Rogers

Why wouldn’t the cash rate be zero or negative in Australia?

Banks are not lending to business, not meaningfully and they are throwing everything at a household-led economic recovery from the 2020 Covid shock.

It is wishful thinking to foresee 2021 as a year to look forward to. The GameSpot nonsense can only portend a reckoning via the equity market and with CCC credits pricing way too tightly, a credit shock worth having is, as ever, near.

The primary market for Australian Treasury Notes has been pricing negative for weeks.

“Once again, the T-Note tender found negative bids,” wrote Peter Sheahan from Curve Securities in his weekly money market comment on Friday.

The T-Note issuance for the final week of January was A$1.5b across two lines of $750m. Bids on the 21/5/2021 maturity were stronger as the weighted average fell from 0.0102 per cent to 0.0048 per cent.

The range was -0.0050 per cent – 0.010 per cent which, Sheahan said, “was essentially lower and tighter”.

“The first issue of the 27/8/2021 was also lower and tighter than last week at 0.00 per cent - 0.02 per cent with a weighted average of 0.0126 per cent down from 0.0172 per cent.

“The margin to BBSW is now negative on both tenors. $9.5b of bids were received representing coverage ratios of 7.1 times and 5.4 times respectively. The 29/1/2021 maturity $10b will be repaid today and the gross outstandings are now $39.75b.”

Funding via RBA Reverse Repo pricing continues to deal at 0.10 per cent.

“A low 58 per cent per cent of maturities were rolled and outstandings are lower at $16.5b down $683m,” Sheahan said.

“The longest tenor was a shorter 70 days. I can see this book regressing to less than $10 billion by March/April as ES balances rise and offer a price advantage lower than 0.10 per cent.

RBA unsecured overnight cash continued to price at 0.03 per cent, “and this seems to be the new established setting” said Curve’s maven.