Australia’s Debt Manager to Offer Less Detail on Issuance Plans

Australia’s government debt manager is paring back the information it provides to the market on issuance plans, in order to gain more flexibility as the economy recovers from the pandemic.

The Australian Office of Financial Management will step back from providing weekly issuance rates and offer less advance notice of new maturities, Chief Executive Officer Rob Nicholl said in a speech to an Australian Business Economists meeting in Sydney on Tuesday. The detail it’s offered over the past year has left the office “hemmed in” and has “tended to ‘hang over’ the market at times, creating drag rather than support,” Nicholl said.

The office will now provide detail on new maturities in two stages: in early July and again in January. Planned gross issuance for the year will still be released with the mid-year forecasts and the subsequent budget, as usual.

The office’s role in maintaining a well-functioning market has been complicated not only by the rapid ramp up in government spending through the pandemic, but also the central bank’s market interventions. The Reserve Bank of Australia has been buying government bonds under a quantitative easing program and as part of its yield curve control program. That’s raised concerns that liquidity in Australia’s relatively small market could suffer.

The RBA’s bond purchases have no direct impact on the AOFM’s weekly sales, Nicholl said, and the AOFM has decided not to issue into bond lines that make up the yield curve control program.

The office had to adapt its approach to issuance last year to be “as aggressive as possible to get well ahead, and to stay ahead” of the government’s funding needs, the CEO said. Running a higher-than-usual cash balance was part of that strategy, he added.

In keeping with the need for more active cash management during the pandemic, Nicholl also highlighted the need for greater reliance on short-term debt. The AOFM’s stepped-up sales of Treasury notes has allowed it to better manage its cash balances and keep a lid on the amount of government bonds it has to sell.

The CEO didn’t specify amounts but said notes will be issued weekly and rates will vary throughout the year to meet changes in the cash cycle.

Additional points:

  • Buybacks of short-dated bonds will remain suspended until the end of 2021-22 “at least”
  • AOFM doesn’t intend to establish new third maturities in some years “in the foreseeable future,” though it hasn’t abandoned the option
  • Maturity gaps will occasionally need to be filled to support the 10-year futures contract. Another new 30-year maturity “will not be under consideration for some time,” the CEO said
  • Decision on issuance to support the 20-year contract is yet to be made, one more maturity of 2043 or a 2044 will be announced in time
  • The AOFM also plans to add a new inflation-linked bond around the 10-year part of the curve. “Should that proceed for the 2021-22 year it would be sensible to assume establishment by syndication and increasing gross issuance above the $2.5 billion already allocated for regular tenders,” the CEO said

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