Operations

This page explains how we plan and deliver on our mandate to manage the Australian Government’s cash, debt and certain investments.

Planning our cash and debt management activities

The Australian Government’s annual Budget and Mid-Year Economic and Fiscal Outlook contain official revenue and spending forecasts. The AOFM forecasts daily government cash flows using advice from agencies (such as the Australian Taxation Office and the Department of Finance). We use these forecasts to plan our annual borrowing program to ensure that the government always has enough money to make payments. In executing our debt and cash management activities, we operate in accordance with an annual remit that has been approved by the Secretary to the Treasury.

Cash management

AOFM’s cash management objective is to ensure the government can always meet its payment obligations at an acceptable cost. To achieve this, we assess forecasting risk, funding risk and refinancing risk. We then consider appropriate levels for cash balances and the reliance on Treasury Notes (T-Notes).

A liquidity buffer is used to manage forecasting risk caused by large, unexpected cash requirements (or unexpected shortfalls in tax collections). It also helps mitigate funding risk associated with sudden and severe market constraints on issuance.

The AOFM has a Liquidity Management Strategy (LMS) which describes our intended approach to cash management for the year. It identifies measures that will be taken to ensure the government can always meet its cash outlays. 

The LMS includes the: 

• level of the liquidity buffer 

• mix of tools and instruments that will be used for cash management, including any limits or targets

• costs that arise from how balances are financed. 

The AOFM Advisory Board reviews the LMS before it is sent to the Secretary for approval as part of AOFM’s Annual Remit.  

Debt management

The AOFM’s debt management objective is to finance the Budget cost effectively, subject to acceptable risk, and to support the ongoing efficient operation of the AGS market. Operationally, this requires transparency and consistency in decision making and for issuance of AGS to consider market conditions and investor preferences. This will encourage broad participation in the AGS market. Greater participation leads to reduced costs and lower risks by improving resilience to market shocks. It also improves the scalability of the funding program to changing borrowing requirements.    

The AOFM formulates an annual Debt Management Strategy (DMS) which describes our intended approach to managing the debt portfolio for the year. This DMS includes recommendations for the structure of AGS issuance that will best align with the debt management objective and balance cost and risk considerations.

The AOFM Advisory Board reviews the DMS before it is sent to the Secretary for approval as part of AOFM’s Annual Remit.  

How does the AOFM borrow money?

Borrowing money on behalf of the Commonwealth involves dealing directly with financial markets. The AOFM deals only with Registered Bidders. These are banks that buy and sell large volumes of bonds in global financial markets and have registered through contractual arrangements to participate in AOFM tenders. Investors including superannuation and pension funds, central banks, insurers, hedge funds and other banks buy bonds from (and sell bonds to) these banks.

We currently issue 3 different instruments: Treasury Bonds (including Green Treasury Bonds), Treasury Indexed Bonds and T-Notes. Collectively, these instruments are referred to as Australian Government Securities (AGS). Treasury Bonds pay a fixed amount of interest (called a coupon) twice each year until the bond matures. Treasury Indexed Bonds pay a quarterly coupon that is linked to inflation. T-Notes are short term instruments that do not pay a coupon. 

Retail investors can access these bonds through Exchange-traded Australian Government Bonds which are available on the Australian Securities Exchange. 

How do these transactions work?

Most AOFM issuance is via tenders (competitive auctions) that are run on an electronic trading platform. Registered Bidders can submit bids for a particular amount of a bond at the price they are prepared to pay. Tenders run for 15 minutes. Our tender system allocates bonds up to the pre-advised volume to those bids at the highest prices (lowest yields) to enable borrowing at the lowest rate available at the time of the tender.

We may also issue via syndication. Syndications involve the appointment of banks as Joint Lead Managers to perform a book-build process directly with investors. Investors place orders by nominating the volume they want to buy of the bond being issued at a particular price within a price range set by the AOFM. We determine the final price and how much of each order will be filled at that price. Syndications can be used for establishing new bond lines or occasionally for issuing existing bond lines.

These transactions are then settled in a system called Austraclear. The AOFM will deliver the securities on receipt of payment.

Investment in securitisation products

The AOFM administers two funds which are for investing in securitisation products - the Australian Business Securitisation Fund (ABSF) and the Structured Finance Support Fund (SFSF). Securitisation products are one way lenders can finance loans to households and businesses.

The ABSF was announced in November 2018 to support the provision of, and develop the market for, finance to lenders for small to medium enterprises (SMEs). A key barrier to SME lenders accessing securitisation financing is a lack of a public track record on the performance of pools of SME loans over time. The AOFM may invest up to $2 billion in securitisation products which finance loans to SMEs. This aims to develop the market by assisting SME lenders to establish a track record of performance. 

The SFSF was established in March 2020 as part of the Government’s economic response to COVID‑19. The AOFM may invest up to $15 billion in securitisation products which finance mortgages and other loans to businesses and consumers. Maintaining access to finance for small lenders during the impact of COVID-19 supports competition in the lending market. 

For more information, see Securitisation.