Markets

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

Australia's treasury should be drafting a thank you note to regulators in Basel and to the central banks of Japan and Europe. Courtesy of them, the country issued 30-year debt and found record demand.

Australia's government sold its biggest-ever bond on Wednesday, raising A$7.6 billion ($5.8 billion) in its first ever offering of 30-year notes. The 3.27 percent yield is less than what the country paid for securities due in five years as recently as 2014, and buyers from abroad snapped up almost two-thirds of the issue.

It's a welcome relief to investors in a world where trillions of dollars of government bonds charge for the privilege of owning them. More so, considering the triple-A rating Australia still enjoys.

That yield and credit score combination make the 30-year notes particularly attractive to global financial institutions, which have started to adopt new liquidity coverage ratios required by banking rules introduced after the 2008 crisis.

Those Basel III guidelines mean that banks need to hold enough liquid securities to withstand 30 days of the kind of liquidity crunch that was seen back then. The devil in the detail here is what constitutes liquid. And outside of good hard cash, triple-A government securities get one of the best regulatory treatments.

Banks, however, are in the business of making money, not holding bonds for an unlikely run on deposits. So treasurers go through pains to try and squeeze some yield out of holding all those godforsaken securities. That's become increasingly difficult since the European Central Bank and the Bank of Japan (in spite of its nation's single-A credit grade) embraced negative interest rates.

Thinning Market
The amount of triple-A debt that offers a positive yield has been steadily declining
Source: Bloomberg

Another negative-rate environment trait is that the average maturity of debt lengthens. There's a body of academic work that has found a correlation between lower yields and longer government debt maturities. If it's cheaper to kick the can down the road for not only a few years, but a few generations, then why not, the thinking goes. Little wonder 2015 saw a record amount of 100-year debentures sold. 

Not in a Hundred Years
The amount of century bonds, which only pay investors back in the 2100s, hit a record in 2015
Source: Bloomberg

So ask not why Australia is selling 30-year bonds or why so many people are interested. The real question is, when's the next one?

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Christopher Langner in Singapore at clangner@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net