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.

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

 

Treasury Indexed Bonds on issue as at 17 November 2017
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
1.00% 21 November 2018 29 April 2014 2,357 1.00 AU000XCLWAJ6 21 November 2017 106.95 88KB 909KB
4.00%  20 August 2020 10 October 1996 5,114 2.61 AU0000XCLWE2 20 November 2017 167.73 88KB 907KB
1.25% 21 February 2022 21 February 2012 5,840 4.13 AU000XCLWAB3 21 November 2017 111.10 88KB 910KB
3.00%  20 September 2025 30 September 2009 7,193 7.01 AU0000XCLWP8 20 December 2017 119.67 88KB 907KB
0.75%  21 November 2027 23 August 2017 3,000 9.57 AU000XCLWAV1 21 November 2017 100.32 376KB 219KB
2.50%  20 September 2030 16 September 2010 4,343 11.08 AU0000XCLWV6 20 December 2017 116.74 88KB 907KB
2.00%  21 August 2035 26 September 2013 3,800 15.08 AU000XCLWAF4 21 November 2017 108.21 89KB 909KB
1.25%  21 August 2040 11 August 2015 2,950 19.70 AU000XCLWAO6 21 November 2017 103.82 374KB 909KB

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 in How to Buy AGS.

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).

Worked Example

As an example of the working of the formula consider the 0.75% 21 November 2027 Treasury Indexed Bond for a trade settling on 27 October 2017. Assuming a real yield to maturity of 0.93 per cent per annum the price per $100 face value is calculated to be $98.638.
In this example, i = 0.002325 (i.e. 0.93 divided by 400), f = 25, d = 92, g = 0.1875 (i.e. 0.75 divided by 4) and n = 40. The K value of this bond (Kt-1) on 21 August 2017 (the previous interest payment date) was 100.00 and the K value (Kt) for 21 November 2017 (the next interest payment date) is 100.32. The 0.32 per cent increase in the K value reflects the average increase in the Consumer Price Index over the two quarters to the June quarter 2017.
If the trade was for Treasury Indexed Bonds with a face value of $20,000,000 the settlement amount would be $19,727,600.00.

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 Kt 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 Kt continues to apply in the ex-interest period.

Last updated: 17 November 2017