Treasury notes differ from bonds because Treasury notes do not have coupons and therefore have no duration risk – that is, holding them for long periods of time is less risky because the capital value won’t change.
On various estimates, about 26 per cent of the world’s investment-grade debt is now sub-zero interest rate.
The investor that took a negative interest rate is likely to be offshore as a local bank can draw funding from the Reserve Bank exchange settlement accounts at zero per cent interest rate.
When the RBA cut the official cash rate to 0.10 per cent from 0.25 per cent, it also cut the rate paid on commercial bank deposits in exchange settlement accounts at the RBA to 0 per cent from 0.10 per cent.
Bond market traders said the deal reflected the time of year when bond issuance started to wind down but also a potential carry trade on currency which Japanese investors have been doing for decades.
The government’s debt manager has forecast $240 billion in Treasury bond issuance this financial year but declined to comment on the record breaking yield.
