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![Page 1: Australian Office of Financial Management The Commonwealth Government Securities Market Michael Allen Australian Office of Financial Management.](https://reader035.fdocuments.us/reader035/viewer/2022070306/55190f6d55034642428b484f/html5/thumbnails/1.jpg)
Australian Office of Financial
Management
The Commonwealth Government Securities
Market
Michael AllenAustralian Office of Financial
Management
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Australian Office of Financial
Management
Introduction
Commonwealth financing task
AOFM’s role
AOFM funding activities
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Australian Office of Financial
Management
Commonwealth
Government Financing
Task
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Australian Office of Financial
Management
Headline Cash Balance*
* Following recent changes in the Australian National Accounts Standards, the underlying and headline cash balance estimates in the chart from 1998-99 onwards include payments by the Commonwealth in respect of accumulated PTE superannuation liabilities.
-10
-5
0
5
10
15
20
25
1995-96Actual
1996-97Actual
1997-98Actual
1998-99Actual
1999-00Actual
2000-01Budget
Esitmate
2000-01MYEFO
2001-02MYEFO
2002-03MYEFO
2003-04MYEFO
$ billion
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Australian Office of Financial
Management
Net Funding Requirement
-25
-20
-15
-10
-5
0
5
10
1995-96Actual
1996-97Actual
1997-98Actual
1998-99Actual
1999-00Actual
2000-01Budget
Estimate
2000-01MYEFO
2001-02MYEFO
2002-03MYEFO
2003-04MYEFO
$ billion
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Australian Office of Financial
Management
Commonwealth Government Debt
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Australian Office of Financial
Management
Fiscal Context
Government set out in Budget– a managed reduction in CGS– not to the full extent of projected reduction in
net debt– maintain liquidity in benchmark lines
Formal market updates
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Australian Office of Financial
Management
OECD Net Debt
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Australian Office of Financial
Management
Fiscal Context
Australia in the vanguard of OECD countries in addressing a new set of debt management policy issues
– benefits of maintaining sovereign curve
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Australian Office of Financial
Management
Global Bond Indices
AUD Share in Decline
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
01/85 04/86 07/87 10/88 01/90 04/91 07/92 10/93 01/95 04/96 07/97 10/98 01/00
Source: Salomons WGBI
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Australian Office of Financial
Management
MSCI Sovereign Debt Index
0.0
2.5
5.0
7.5
10.0
12.5
15.0
17.5
20.0
22.5
25.0
27.5
30.0
Country Share
%
Source: Morgan Stanley, Capital International
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Australian Office of Financial
Management
0.0
20.0
40.0
60.0
80.0
100.0
120.0
Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00
Commonwealth
State
Corporate
CGL Market Outstandings
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Australian Office of Financial
Management
Role of the
Australian Office of
Financial Management
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Australian Office of Financial
Management
AOFM
AOFM established 1 July 1999
Debt management responsibility
Prudent Sovereign Debt manager
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Australian Office of Financial
Management
AOFM
Australia among the leaders in the OECD in pursuing a complementary focus on reform of public sector financial management
– Charter of Budget Honesty
– Accrual budgeting, reporting and accounting
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Australian Office of Financial
Management
AOFM
As with any corporate treasury function, sovereign debt management is a business exposed to a variety of financial risks– fiduciary responsibility to taxpayers
critical distinctions between sovereign and corporate
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Australian Office of Financial
Management
AOFM
Policy constraints Market liquidity Risk free pricing benchmark Commercial constraints
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Australian Office of Financial
Management
AOFM
Risk Management Task–Debt issuance–Financial risk–Credit risk–Operational risk
Commonwealth approach is ahead of OECD practise.
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Australian Office of Financial
Management
Debt Management Responsibility
Debt issuance Risk management Cash management General Government interest
calculations Market communication
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Australian Office of Financial
Management
Portfolio Management
Risk accountability Passive approach Benchmark portfolio Risk management Performance monitoring
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Australian Office of Financial
Management
Funding Strategy Objectives
Sovereign Debt Manager Flexible strategies Investor demand Liquidity premium Market efficiency
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Australian Office of Financial
Management
AOFM Funding
Activities
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Australian Office of Financial
Management
Debt Maturity Profile
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Australian Office of Financial
Management
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Bonds TARBS IndexedLinked
T - Notes International Other
1991
2000
%
Change in Funding Source
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Australian Office of Financial
Management
T-Note Funding
-6
-4
-2
0
2
4
6
8
10
12
-6
-4
-2
0
2
4
6
8
10
12
$b
Estimated Commonwealth Cash Balances
September December March June
$b
1999/2000
2001/2002
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Australian Office of Financial
Management
T-Note Funding
Greater flexibility– Benchmark lines
Increase market liquidity Benchmark short end curve Assist RBA’s market operations
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Australian Office of Financial
Management
T-Note Market Turnover
0
1
2
3
4
5
6
7
8A
ug-9
1
Jan-
92
Jun-
92
Nov
-92
Apr
-93
Sep-
93
Feb-
94
Jul-
94
Dec
-94
May
-95
Oct
-95
Mar
-96
Aug
-96
Jan-
97
Jun-
97
Nov
-97
Apr
-98
Sep-
98
Feb-
99
Jul-
99
Dec
-99
May
-00
Oct
-00
0
2
4
6
8
10
12
14
16
18
20
22
24
Trade T/Over (lhs) Repo T/Over (lhs) Total outstanding (rhs)
Average Weekly T-Note Turnover $ billion $ billion
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Australian Office of Financial
Management
T-Note Liquidity RatioLiquidity Ratio
0
0.1
0.2
0.3
0.4
0.5
0.6A
ug-9
1
Jan-
92
Jun-
92
Nov
-92
Apr
-93
Sep-
93
Feb-
94
Jul-
94
Dec
-94
May
-95
Oct
-95
Mar
-96
Aug
-96
Jan-
97
Jun-
97
Nov
-97
Apr
-98
Sep-
98
Feb-
99
Jul-
99
Dec
-99
May
-00
Oct
-00
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Australian Office of Financial
Management
Short Term Debt Profile
0
10
20
30
40
50
60
70
80
90
100
0
5
10
15
20
25
30
35
40
45
Treasury Notes and Treasury Bonds < 1.5 years to maturity Total Treasury Notes and Treasury Bonds (LHS) Ratio (RHS)
$ billion per cent
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Australian Office of Financial
Management
Inflation Linked Funding
Tender performance Market review $300m program Fixed issuance dates
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Australian Office of Financial
Management
Inflation Linked FundingTIBs - at tender margin to secondary market
-15
-10
-5
0
5
10
1525
/08/
1994
27/1
0/19
94
06/0
4/19
95
13/0
7/19
95
16/1
1/19
95
16/0
5/19
96
10/1
0/19
96
20/0
2/19
97
19/0
6/19
97
16/1
0/19
97
22/0
1/19
98
23/0
4/19
98
13/0
8/19
98
19/1
1/19
98
04/0
3/19
99
05/0
8/19
99
23/0
9/19
99
20/0
1/20
00
bps
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Australian Office of Financial
Management
Bond Market Funding
Focus on liquidity Target long dated maturities Regular tender program $3.4 b 1999/2000 issuance
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Australian Office of Financial
Management
Bond Market Activity
0
20
40
60
80
100
84/5 85/6 86/7 87/8 88/9 89/90 90/1 91/2 92/3 93/4 94/5 95/6 96/7 97/8 98/9
0
1
2
3
4
5
6
7
Bonds Outstanding (LHS) Physicals, excl. Repo's (RHS)
$ billion $ billion
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Australian Office of Financial
Management
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Jan-01 Nov-01 Mar-02 Oct-02 Aug-03 Sep-04 Jul-05 Feb-06 Nov-06 Oct-07 Aug-08 Sep-09 Jun-11 May-13
Bond Market Maturity Profile
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Australian Office of Financial
Management
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Jul-88 Jul-89 Jul-90 Jul-91 Jul-92 Jul-93 Jul-94 Jul-95 Jul-96 Jul-97 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05
$ M
Bond Maturity Profile - June 1988
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Australian Office of Financial
Management
Funding Strategy Objectives
Cost vs Risk
Flexibility CommercialPrice Tension
Benchmark Issuance
Transparency
Funding Strategy - Background
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Australian Office of Financial
Management
Primary Market
Curve Efficiency
Curve Efficiency
Secondary Market Liquidity
Liquidity Premium
SubstitutionPrice Tension
Secondary Market
Funding Strategy - Background
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Australian Office of Financial
Management
Conclusion
Reduced Commonwealth financing task
Potential for further decline in relative liquidity
AOFM to provide regular updates