Australian Office of Financial Management
Annual Report 2006-07
© Commonwealth of Australia 2007
ISBN 0 642 74416 5
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A copy of this document appears on the Australian Office of Financial Management web site (www.aofm.gov.au). The 2005-06 statistical information is also available on the website.
Printed by CanPrint Communications Pty Ltd.
27 September 2007
The Hon Peter Costello MP
Treasurer
Parliament House
CANBERRA ACT 2600
Dear Treasurer
I have pleasure in presenting the Annual Report of the Australian Office of Financial Management for the year ending 30 June 2007 for presentation to the Parliament.
The Report has been prepared in accordance with guidelines approved on behalf of the Parliament by the Joint Committee of Public Accounts and Audit.
Yours sincerely
SIGNED
Neil Hyden
Chief Executive Officer
AOFM OBJECTIVE
The AOFM aims to manage its net debt portfolio at least cost over the medium-term, subject to an acceptable level of risk.
It also contributes to the operation of financial markets by supporting efficient Treasury Bond and Treasury Bond futures markets.
Contents
Review by the Chief Executive Officer
Treasury Bond issuance and markets
Cash management
Management of the portfolio
Portfolio outcomes
Operational risk
International activities
Staff
Part 1: AOFM Overview
Role, function, outcome and output structure
Structure of the AOFM's portfolio
Funding
Organisational structure
Appropriations and other funding
Part 2: Operations and performance
Introduction
Treasury Bond issuance
Cash management
Minimising debt servicing costs subject to acceptable risk
Communications Fund
Operational risk
Agency financial performance
Managing the cost of debt
Development of portfolio modelling
Adjusting to a low debt environment
Balancing cost and risk
Falling term premium
Responding to the falling term premium
Impact of interest rate swaps on debt servicing costs
Conclusion
Part 3: Management and accountability
Corporate governance
Audit
Judicial decisions
Management of human resources
Assets management
Purchasing
Consultants
Advertising and market research
Discretionary grants
Freedom of information
Ecologically sustainable development and environmental performance
Part 4: Financial statements
Glossary
List of tables
Part 1: AOFM Overview
Table 1: General Government Sector funding requirement and funding sources
Table 2: AOFM gross appropriations and other funding
Part 2: Operations and performance
Table 1: Treasury Bond tender results — 2006-07
Table 2: Spreads from mid-market on interest rate swaps
Table 3: Australian Government debt portfolio cost of funds analysis
Table 4: Relative performance analysis: Long-Term Debt Portfolio (LTDP) vs benchmark in 2006-07
Table 5: Derivative counterparties by credit rating as at 30 June 2006 and 30 June 2007
Managing the cost of debt
Table 1: Interest rate swap activity
Part 3: Management and accountability
Table 1: Operative and paid inoperative staff as at 30 June 2006 and 2007
Table 2: AOFM salary ranges
Table 3: Consultancy contracts
Table 4: Consultancy contracts of $10,000 or more let during 2006-07
List of figures
Part 1: AOFM Overview
Figure 1: Portfolio structure
Figure 2: AOFM organisational structure
Managing the cost of debt
Figure 1: The structure of the Net Debt Portfolio
List of charts
Part 2: Operations and performance
Chart 1: Treasury Bond issuance for 2006-07 and Treasury Bonds outstanding as at 30 June 2007
Chart 2: Australian Government financial asset holdings at the Reserve Bank of Australia 2006-07
Chart 3: 91-day moving average cash balance
Chart 4: Australian swap yield curves 2006-07
Chart 5: Modified duration — nominal component of Australian dollar Long-Term Debt Portfolio 2006-07
Chart 6: Short-dated exposure — nominal component of Australian dollar Long-Term Debt Portfolio 2006-07
Managing the cost of debt
Chart 1: Slope of Government yield curves (10 year bond less cash)
Chart 2: Swap yield curve and implied cash rates at 30 June 2007
Chart 3: Modified duration of the domestic debt portfolio
Chart 4: Direct impact of interest rate swaps on effective cost of funds
Chart 5: Realised savings arising from interest rate swaps
Chart 6: Revaluation costs on interest rate swaps
Chart 7: Total savings arising from interest rate swaps (inclusive of revaluations)
Return to Contents
Next - Part 1: AOFM Overview
Previous - Review by the Chief Executive Officer