Treasury Indexed Bonds

Treasury Indexed Bonds are medium to long-term securities 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 Indexed Bonds outstanding Treasury Indexed Bonds on issue as at 29 July 2016
Coupon and Maturity Date of first issue Face Value ($m AUD) Modified Duration ISIN Next Coupon Payment date* Kt factor Term sheet — PDF Term sheet — RTF
1% 21 November 2018 29 April 2014 5,089 2.27 AU000XCLWAJ6 21 August 2016 104.74 88KB 909KB
4%  20 August 2020 10 October 1996 5,114 3.75 AU0000XCLWE2 20 August 2016 164.25 88KB 907KB
1.25% 21 February 2022 21 February 2012 5,090 5.36 AU000XCLWAB3 21 August 2016 108.80 88KB 910KB
3%  20 September 2025 30 September 2009 6,543 8.14 AU0000XCLWP8 20 September 2016 117.19 88KB 907KB
2.5%  20 September 2030 16 September 2010 3,443 12.25 AU0000XCLWV6 20 September 2016 114.32 89KB 907KB
2%  21 August 2035 26 September 2013 3,350 16.28 AU000XCLWAF4 21 August 2016 105.96 89KB 909KB
1.25%  21 August 2040 11 August 2015 1,700 21.08 AU000XCLWAO6 21 August 2016 101.68 374KB 909KB

All Treasury Indexed Bonds are exempt from non-resident interest withholding tax (IWT).

This table is updated on a weekly basis.

* If the coupon interest payment date is not a business day, payment will be made on the next succeeding business day without payment of additional interest.

Note: Kt factor is the factor with which the original face value of an indexed bond is adjusted in order to reflect the cumulative capital accretion owing to changes in the CPI.

Quoted yields for Treasury Indexed Bonds

Are easily accessible via:

Active market makers

There is an active secondary market for Treasury Indexed Bonds. The Australian Financial Markets Association (AFMA) has published conventions that apply to trading in the over-the-counter market of long-dated debt securities such as Treasury Indexed Bonds.

Active Treasury Indexed Bond market makers are listed alphabetically below:

 Market Maker Sales Contact 
 Australia and New Zealand Banking Group Ltd

+61 2 8037 0220 (Sydney)

+65 6681 8897 (Singapore)

+44 20 3229 2070 (London)

 Bank of America Merrill Lynch

+61 2 9226 5294 (Sydney)

+44 20 7995 6750 (London)

 Citi

+61 2 8225 6450 (Sydney)

+65 6657 2800 (Singapore)

+44 20 7986 9521 (London)

 Commonwealth Bank of Australia

+61 2 9117 0020 (Sydney)

+44 20 7329 6444 (London)

 Deutsche Bank AG

+61 2 8258 1444 (Sydney)

+44 20 7547 1931 (London)

+81 3 5156 6195 (Tokyo)

 JPMorgan Chase Bank, N.A.

+61 2 9003 7988 (Sydney)

+1 212 834 5660 (New York)

 National Australia Bank Ltd.

+61 2 9295 1166 (Sydney)

+44 20 7726 2747 (London)

+1 212 916 9677 (New York)

 Nomura

+61 2 8062 8607 (Sydney)

+44 20 7103 0020 (London)

 UBS AG

+61 2 9324 2222 (Sydney)

+44 20 7567 3645 (London)

 Westpac Banking Corp

+61 2 8204 2711 (Sydney)

+65 6309 3877 (Singapore)

+44 20 7621 7620 (London)

+1 212 551 1806 (New York)

Forthcoming tenders

Treasury Indexed Bonds are issued by tender twice a month in most months, for more information please see Forthcoming Tenders. To receive tender announcements and results via email, you may subscribe to the AOFM email service.

Information Memorandum

The Information Memorandum for Treasury Indexed Bonds [PDF 111KB | RTF 1.32MB] provides detailed information concerning these securities including the terms and conditions of their issue.

Pricing Formulae for Treasury Indexed Bonds

Treasury Indexed Bonds are both quoted and traded on a real yield to maturity basis rather than on a price basis. This means the price is calculated after agreeing on the real yield to maturity. The price is calculated by inputting the real yield to maturity into the appropriate pricing formulae.
The pricing formula used for Treasury Indexed Bonds per $100 face value, rounded to the third decimal place except during the last interest period (the period beginning when a Treasury Indexed Bond goes ex‑interest for the second last time) when there is no rounding, is as follows:

This formula solves for the price of $100 face value of a fixed interest indexed security using the yield to maturity, the coupon interest rate, the maturity date, the next interest payment date, the settlement date and indexation factors based on the Consumer Price Index. If you require further assistance please contact the Domestic Markets desk on +61 2 9551 8313. (1)

where:

v = This formula solves for v, which is an input into formula (1) above. V is derived using the yield to maturity of the fixed coupon security, and is equal to one divided by one plus i.
i = the annual real yield (per cent) to maturity divided by 400.
f = the number of days from the date of settlement to the next interest payment date.
d = the number of days in the quarter ending on the next interest payment date.
g = the fixed quarterly interest rate payable (equal to the annual fixed rate divided by 4).
n = the number of full quarters between the next interest payment date and the date of maturity.
Pricing_Formulae_0-3 Annuity2
p = half the semi-annual change in the Consumer Price Index over the two quarters ending in the
quarter which is two quarters prior to that in which the next interest payment falls (for example,
if the next interest payment is in November, p is based on the movement in the Consumer Price
Index over the two quarters ending the June quarter preceding).
Pricing_Formulae_0-5rounded to two decimal places, where CPIt is the Consumer Price Index
for the second quarter of the relevant two quarter period; and CPIt-2 is the Consumer Price Index
for the quarter immediately prior to the relevant two quarter period.
The Ks are indexation factors (also known in the market as ‘the nominal value of the principal’ or ‘capital value’):
Kt = nominal value of the principal at the next interest payment date.
Kt-1 = nominal value of the principal at the previous interest payment date.
Kt-1 is equal to $100 (the face value of the stock) at the date one quarter before the date on which the stock pays its first coupon.
The relationship between successive K values is as follows:
Pricing_Formulae_0-6 Pricing_Formulae_0-7

Settlement amounts are rounded to the nearest cent (0.5 cent being rounded up).

Working Example

As an example of the working of the formula consider the 4.0% 20 August 2020 Treasury Indexed Bond for a trade settling on 31 May 2010. Assuming a real yield to maturity of 2.65 per cent per annum the price per $100 face value is calculated to be $160.144.
In this example, i = 0.006625 (i.e. 2.65 divided by 400), f = 81, d = 92, g = 1.0 (i.e. 4 divided by 4) and n = 40. The K value of this bond (Pricing_formulae-15) on 20 May 2010 (the previous interest payment date) was 142.65 and the K value (Pricing_formulae-16) for 20 August 2010 (the next interest payment date) is 143.66. The 0.71 per cent increase in the K value reflects the average increase in the Consumer Price Index over the two quarters to the March quarter 2010.
If the trade was for Treasury Indexed Bonds with a face value of $20,000,000 the settlement amount would be $32,028,800.00.

Ex-Interest Treasury Indexed Bonds

The ex-interest period for Treasury Indexed Bonds is seven calendar days. With ex-interest Treasury Indexed Bonds the next coupon payment is not payable to a purchaser of the bonds. In this case, calculation of an ex-interest price is effected by the removal of the ‘1′ from the term Pricing_formulae-7in formula (1), thereby adjusting for the fact that the purchaser will not receive a coupon payment at the next interest payment date. The formula in this instance is therefore:

Pricing_formulae-17 (2)

Note that the Pricing_formulae-16 in formula (2) is still the indexation factor on the next interest payment date, even though there is no interest payable to the subscriber or purchaser on that date. That is, this Pricing_formulae-16 continues to apply in the ex-interest period.

Last updated: 29 July 2016