Operations

Active Issuance

Treasury Bonds

Medium to long-term debt securities issued by the Australian Government that carries an annual rate of interest (the coupon) fixed over the life of the security, payable in six monthly installments (semi-annually) on the face, or par, value of the security. The bonds are repayable at face value on maturity.

Treasury Indexed Bonds

Medium to long-term debt securities issued by the Australian Government for which the capital value of the security is adjusted for movements in the Consumer Price Index (CPI). Interest is paid quarterly, at a fixed rate, on the adjusted capital value. At maturity, investors receive the adjusted capital value of the security – the value adjusted for movement in the CPI over the life of the bond.

Treasury Notes

Short-term discount securities issued by the Australian Government primarily used for within-year financing. The volume on issue varies depending on the flows of Australian Government receipts and expenditures.

Other AOFM Operations

Buyback Tenders

A method of repurchasing outstanding debt securities through auction. The amount and security to be repurchased are announced by the AOFM. Registered participants then offer their desired amounts of stock at interest rates at which they are prepared to sell. Offers are accepted descending from the highest interest rate (yield) until the buyback amount has been filled. Stock is therefore repurchased in order of highest yield (and lowest price).

Cash Management

The Australian Government maintains a group of bank accounts at the Reserve Bank of Australia, known as the Official Public Account (OPA), the aggregate balance of which represents its daily cash position. The AOFM is responsible for management of the aggregate OPA balance. Cash proceeds not required for immediate purposes are invested in term deposits with the RBA.

Securities lending facility

A facility established by the AOFM in 2004 that uses repurchase agreements to lend Treasury Bonds and Treasury Indexed Bonds to market participants for short periods. The facility is operated by the Reserve Bank of Australia on behalf of the AOFM. It supports the efficient operation of these markets as it facilitates trading by enabling dealers to obtain specific lines of stock when they are not readily available from other sources.

Residential mortgage-backed securities (RMBS)

A debt instrument issued by a special purpose vehicle to finance the securitisation of a pool of loans that is secured by residential mortgages. A description of the principal features of a typical RMBS transaction can be found on pages 30-31 of the AOFM’s 2008-09 Annual Report.

Exchange-traded Treasury Bonds

Exchange-traded Treasury Bonds (eTBs) provide a way for retail investors to invest in Treasury Bonds. eTBs are quoted and traded on the Australian Securities Exchange (ASX). An eTB holder has beneficial ownership of Treasury Bonds in the form of CHESS Depositary Interests (CDIs). This means obtaining all of the economic benefits (including coupon and principal payments) attached to legal ownership of the Treasury Bonds over which the CDIs have been issued. A one unit holding of an eTB provides beneficial ownership of $100 Face Value of the Treasury Bond over which it has been issued.

Exchange-traded Treasury Indexed Bonds

Exchange-traded Treasury Indexed Bonds (eTIBs) provide a way for retail investors to invest in Treasury Indexed Bonds. eTIBs are quoted and traded on the Australian Securities Exchange (ASX). An eTIB holder has beneficial ownership of Treasury Indexed Bonds in the form of CHESS Depositary Interests (CDIs). This means obtaining all of the economic benefits (including coupon and principal payments) attached to legal ownership of the Treasury Indexed Bonds over which the CDIs have been issued. A one unit holding of an eTIB provides beneficial ownership of $100 Face Value of the Treasury Indexed Bond over which it has been issued.

Historical Issuance/Activities

Australian Savings Bonds

Debt securities aimed at retail investors issued by the Australian Government from 1976 until 1987. The bonds were sold ‘on tap’ and had a maximum maturity of around 7.5 years. The security could be redeemed early at the request of the holder on a month’s notice and without penalty after a minimum holding period.

Bearer securities

A negotiable instrument, akin to cash, which evidences a payment obligation to be met, on presentation, at designated dates. The issuer of the instrument does not record the identity of the security holder, and as such physical possession of the certificate is sufficient proof of ownership. The certificates for bonds issued as bearer securities normally carry detachable coupons. In the past some AGS were issued in bearer form.

Interest Indexed Bonds

Interest Indexed Bonds have all matured. Interest on these bonds varied over time according to movements in the CPI. The bonds were repayable at face value on maturity.

Interest rate swap

An agreement between two parties to swap interest payments. It usually involves one party exchanging a stream of fixed interest cash flows for a stream of floating interest cash flows. The AOFM undertook a program to unwind its existing interest rate swaps in 2008-09. The AOFM is not currently undertaking interest rate swaps.

Overdue securities

Securities which have passed their maturity date but remain unpresented by stockholders. Overdue securities issued the Australian Government are predominately in the form of Treasury Bonds, Australian Savings Bonds and War Savings Certificates. The Australian Government repays the amount due when the stock is presented for payment. No interest accrues on the stock following its maturity date.

Special Bond

A retail debt instrument issued by the Australian Government from 1959 to 1976 which was sold on tap and with an original maturity of around 7.5 years. The instrument was the forerunner of the Australian Savings Bond.

Tax Free Stock (TFS)

Stock with no fixed date of maturity issued by the New South Wales, Victorian and South Australian Governments prior to 1 January 1924. Under the Financial Agreement Act 1994, Tax Free Stock is administered by the Australian Government on behalf of State governments.

Treasury Adjustable Rate Bond (TAB)

A medium-term debt security issued by the Australian Government from 1994 to 1997 that carried an interest rate adjusted quarterly in line with movements in the bank bill swap reference mid-rate, payable on the face value of the security. TABs were repayable at face value on maturity.

War Savings Certificates (WSC)

War Savings Certificates were securities issued by the Australian Government in bearer form to raise funds during the World Wars. The securities had maturities ranging from 3 to 10 years in the case of the First World War and 5 to 7 years in the case of the Second World War. Certificates were issued at a discount, with interest being incorporated in the face value of the certificate payable at maturity. All outstanding War Savings Certificates War Savings Certificates are now overdue securities.

Last updated: 1 June 2017