Research

This paper explains the methodology behind the Term Premium Estimates published in the Data Hub. We explore a linear-regression based dynamic term structure model developed by Adrian, Crump and Moench ‘ACM’ (2013). We fit this model to the Australian Treasury Bond term structure and estimate term premium through a daily yield decomposition.

The AOFM aims to provide a stable (that is, low risk) and low cost debt funding base for the government into the future. The intention of this article is to provide some insight into how the AOFM approaches strategic decision making given these uncertainties and trade‑offs.

The Australian Government first introduced competitive price tenders for Treasury Bonds in August 1982. The key feature of this approach is that the issuer sets the volume of securities issued while the market determines the issuance yield. The bids at tender provide a snapshot of the demand for securities and a number of metrics are available for assessing tender performance.

Commencing in 1996, the Commonwealth began setting a duration benchmark on its net debt portfolio that encapsulated the desired debt portfolio characteristics, including expected cost and risks to this expected outcome. This paper examines the lifetime reduction in debt servicing costs made possible through duration targeting and the Commonwealth’s use of interest rate swaps.

In the decade to 2008, fiscal surpluses and proceeds from asset sales eliminated the need for the Commonwealth to issue debt for budget financing purposes. As a result the volume of Commonwealth Government Securities (CGS) on issue began to fall as bond lines matured and repurchases were made of other stocks. Before long, it appeared that ongoing reductions in the volume of debt on issue could threaten the continued viability of the CGS market.

During 2003‑04 the AOFM completed the unwinding of its foreign currency derivatives. This brought to a close a long period in which the Australian Government had a significant foreign currency component in its debt portfolio. The following is a review of the experience of foreign currency exposure in the Australian Government’s debt management operations.