1. Australian Office of Financial Management The Commonwealth Government Securities Market Michael Allen Australian Office of Financial Management

2. Australian Office of Financial Management Introduction Commonwealth financing task AOFMs role AOFM funding activities

3. Australian Office of Financial Management Commonwealth Government Financing Task

4. Australian Office of Financial Management Headline Cash Balance* * Following recent changes in the Australian National Accounts Standards, the underlying and headline cash balance estimates in the chart from 1998-99 onwards include payments by the Commonwealth in respect of accumulated PTE superannuation liabilities.

5. Australian Office of Financial Management Net Funding Requirement

6. Australian Office of Financial Management Commonwealth Government Debt

7. Australian Office of Financial Management Fiscal Context Government set out in Budget –a managed reduction in CGS –not to the full extent of projected reduction in net debt –maintain liquidity in benchmark lines Formal market updates

8. Australian Office of Financial Management OECD Net Debt

9. Australian Office of Financial Management Fiscal Context Australia in the vanguard of OECD countries in addressing a new set of debt management policy issues –benefits of maintaining sovereign curve

10. Australian Office of Financial Management Global Bond Indices AUD Share in Decline Source: Salomons WGBI

11. Australian Office of Financial Management MSCI Sovereign Debt Index Source: Morgan Stanley, Capital International

12. Australian Office of Financial Management Commonwealth State Corporate CGL Market Outstandings

13. Australian Office of Financial Management Role of the Australian Office of Financial Management

14. AOFM AOFM established 1 July 1999 Debt management responsibility Prudent Sovereign Debt manager

15. Australian Office of Financial Management AOFM Australia among the leaders in the OECD in pursuing a complementary focus on reform of public sector financial management –Charter of Budget Honesty –Accrual budgeting, reporting and accounting

16. Australian Office of Financial Management AOFM As with any corporate treasury function, sovereign debt management is a business exposed to a variety of financial risks –fiduciary responsibility to taxpayers critical distinctions between sovereign and corporate

17. Australian Office of Financial Management AOFM Policy constraints Market liquidity Risk free pricing benchmark Commercial constraints

18. Australian Office of Financial Management AOFM Risk Management Task –Debt issuance –Financial risk –Credit risk –Operational risk Commonwealth approach is ahead of OECD practise.

19. Australian Office of Financial Management Debt Management Responsibility Debt issuance Risk management Cash management General Government interest calculations Market communication

20. Australian Office of Financial Management Portfolio Management Risk accountability Passive approach Benchmark portfolio Risk management Performance monitoring

21. Australian Office of Financial Management Funding Strategy Objectives Sovereign Debt Manager Flexible strategies Investor demand Liquidity premium Market efficiency

22. Australian Office of Financial Management AOFM Funding Activities

23. Australian Office of Financial Management Debt Maturity Profile

24. Australian Office of Financial Management Change in Funding Source

25. Australian Office of Financial Management T-Note Funding

26. Australian Office of Financial Management T-Note Funding Greater flexibility –Benchmark lines Increase market liquidity Benchmark short end curve Assist RBAs market operations

27. Australian Office of Financial Management T-Note Market Turnover

28. Australian Office of Financial Management T-Note Liquidity Ratio

29. Australian Office of Financial Management Short Term Debt Profile

30. Australian Office of Financial Management Inflation Linked Funding Tender performance Market review $300m program Fixed issuance dates

31. Australian Office of Financial Management Inflation Linked Funding

32. Australian Office of Financial Management Bond Market Funding Focus on liquidity Target long dated maturities Regular tender program $3.4 b 1999/2000 issuance

33. Australian Office of Financial Management Bond Market Activity

34. Australian Office of Financial Management Bond Market Maturity Profile

35. Australian Office of Financial Management Bond Maturity Profile - June 1988

36. Australian Office of Financial Management Funding Strategy Objectives Cost vs Risk FlexibilityCommercialPrice Tension Benchmark Issuance Transparency Funding Strategy - Background

37. Australian Office of Financial Management Primary Market Curve Efficiency Secondary Market Liquidity Liquidity Premium SubstitutionPrice TensionSecondary Market Funding Strategy - Background

38. Australian Office of Financial Management Conclusion Reduced Commonwealth financing task Potential for further decline in relative liquidity AOFM to provide regular updates