Treasury Bond Issuance and Tender Arrangements

16 July 2008

Op Notice No. 03/2008

This notice provides further details of planned Treasury Bond issuance during the 2008-09 financial year (1 July 2008 to 30 June 2009) and announces changes to arrangements for the conduct of Treasury Bond tenders.

Operational Notice No 1/2008 of 14 May 2008 outlined an indicative program of Treasury Bond issuance of $5.3 billion in 2008-09 based on past issuance patterns designed to maintain the total stock of bonds on issue.  On 20 May 2008 the Treasurer announced additional issuance of around $5 billion during 2008-09 to increase the total stock of bonds on issue.

Accordingly, total Treasury Bond issuance in 2008-09 is planned to total around $10.3 billion. This consists of:

  • $2.0 billion of issuance into the existing May 2021 Treasury Bond (bringing the volume on issue for this bond line up to $5 billion);
  • $3.3 billion of issuance of a new June 2014 Treasury Bond; and
  • around $5.0 billion of issuance into other existing Treasury Bond lines, targeted at lines that are in the shortest supply in the market.

Legislation to allow the increased issuance has now come into effect.  The legislation also provides scope for greater flexibility in the timing of issuance than was available in the past. The AOFM will use this greater flexibility to adjust planned tenders in the light of bond market conditions to best support the overall liquidity and efficient operation of the market.  To this end, it will outline details of planned issuance at quarterly intervals over the course of the financial year.

Issuance in the September Quarter

The following table indicates planned issuance of the June 2014 and May 2021 Treasury Bond lines in the period to end-September 2008:

Date Treasury Bond Face Value Amount
($ million)
21 July 2008 June 2014

750

11 August 2008 June 2014

600

8 September 2008 May 2021

400

15 September 2008 June 2014

450

All the above tenders will be conducted on an outright cash basis.

Issuance of other bond lines is expected to total around $1.5 billion in the September quarter. This issuance will be targeted at lines that are in relatively short supply in the market, while steadily augmenting the total volume of bonds on issue. Amounts offered per tender of these bond lines is expected to be around $150 million to $200 million. Some of these tenders may be conducted on a switch basis for semi-government debt securities.

Arrangements for the conduct of Treasury Bond tenders

Following consultations with financial market participants, several changes will be made to the arrangements for the conduct and settlement of Treasury Bond tenders in 2008-09.

  • In recent years, Treasury Bond tenders have usually been held on a Tuesday with a 12.15 pm closing time for the lodgement of bids.  In future tenders will now normally be conducted on either a Monday or a Wednesday with a closing time for the lodgement of bids of 10.30 am.
    • Tenders will be confirmed at noon on the business day prior to the day on which the tender is to be conducted.  These announcements will indicate (or confirm) the bond lines and the face value amounts to be issued.
  • As noted above, some tenders may be conducted on a switch basis for semi-government debt securities rather than on an outright cash basis. This is to facilitate the investment of the proceeds by the AOFM.
    • Official tender announcements will provide notice of tenders to be conducted on a switch basis and the stocks to be switched.
    • All tenders in 2008-09 for issue of the June 2014 and May 2021 bond lines will be conducted on an outright cash basis.
    • Detailed information on how switch tenders are to be conducted will be provided prior to the first switch tender being held.
  • Unless otherwise notified, settlement of bids accepted in Treasury Bond tenders will take place on the third business day following the tender, rather than the second business day following the tender as has been the practice in recent years. This will align settlement of accepted tender bids with normal practice for the settlement of secondary market bond trades.

Tenders will continue to be conducted through the AOFM Tender System which is accessed via the BLOOMBERG PROFESSIONAL® Service.

AOFM securities lending facility

It is planned to widen the range of collateral accepted in connection with the lending of Treasury Bonds through the AOFM securities lending facility. It is also planned to make changes to the facility to permit the borrowing of Treasury Bonds on an intra-day basis. These changes are expected to be implemented around the middle of next month.

Further details concerning these changes will be announced at the time of their implementation.

Investment activity

The AOFM will shortly issue an Operational Notice on its planned investment activity in 2008-09.

Background information

Treasury Bond issuance is targeted at maintaining liquid and efficient Treasury Bond and Treasury Bond futures markets. The volume and timing of Treasury Bond issuance accordingly takes account of the need to have an appropriate range of Treasury Bonds available for inclusion in the bond baskets for Treasury Bond futures contracts.

On 20 May 2008 the Treasurer announced an increase in the issuance of Treasury Bonds as part of the Government’s commitment to the effective operation of Australia’s financial markets. Details of the announcement are contained in the Treasurer’s Media Release No. 58 of 2008.

Legislative changes to allow the increased issuance were introduced in the Commonwealth Securities and Investment Legislation Amendment Act 2008.

Last updated: 21 March 2014