The Commonwealth Government Securities Market
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Michael Allen
Australian Office of Financial Management
Introduction
- Commonwealth financing task
- AOFM's role
- AOFM funding activities
Commonwealth Government Financing Task
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.
Net Funding Requirement
Commonwealth Government Debt
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 update
OECD Net Debt
Fiscal Context
- Australia in the vanguard of OECD countries in addressing a new set
of debt management policy issues
- benefits of maintaining sovereign curve
Global Bond Indices
MSCI Sovereign Debt Index
CGL Market Outstandings
Role of the Australian Office of Financial Management
AOFM
- AOFM established 1 July 1999
- Debt management responsibility
- Prudent Sovereign Debt manager
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
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
AOFM
- Policy constraints
- Market liquidity
- Risk free pricing benchmark
- Commercial constraints
AOFM
- Risk Management Task
- Debt issuance
- Financial risk
- Credit risk
- Operational risk
- Commonwealth approach is ahead of OECD practise.
Debt Management Responsibility
- Debt issuance
- Risk management
- Cash management
- General Government interest calculations
- Market communication
Portfolio Management
- Risk accountability
- Passive approach
- Benchmark portfolio
- Risk management
- Performance monitoring
Funding Strategy Objectives
- Sovereign Debt Manager
- Flexible strategies
- Investor demand
- Liquidity premium
- Market efficiency
AOFM Funding Activities
Debt Maturity Profile
Change in Funding Source
T-Note Funding
T-Note Funding
- Greater flexibility
- Benchmark lines
- Increase market liquidity
- Benchmark short end curve
- Assist RBA's market operations
T-Note Market Turnover
T-Note Liquidity Ratio
Short Term Debt Profile
Inflation Linked Funding
- Tender performance
- Market review
- $300m program
- Fixed issuance dates
Inflation Linked Funding
Bond Market Funding
- Focus on liquidity
- Target long dated maturities
- Regular tender program
- $3.4 b 1999/2000 issuance
Bond Market Activity
Bond Market Maturity Profile
Bond Maturity Profile - June 1988
Funding Strategy - Background
Funding Strategy - Background
Conclusion
- Reduced Commonwealth financing task
- Potential for further decline in relative liquidity
- AOFM to provide regular updates
