AOFM to issue indexed bonds this week

Philip Bayley
Following on from NSW Treasury Corp the week before last, Queensland Treasury Corp announced last week which of its bond lines have been formally guaranteed by the Commonwealth government. The lines are June 2011, April 2012, August 2013, October 2015, September 2017, June 2019 and June 2021.

On Wednesday, the Australian Office of Financial Management sold A$502 million of April 2020 bonds at a weighted average yield of 5.43 per cent with oversubscriptions of 3.4 times being received. On Friday, A$699 million of May 2013 CGS were sold at a weighted average yield of 4.91 per cent. Oversubscriptions came in at 4.1 times.  

AOFM announced in mid August that it would commence issuance of capital indexed bonds on behalf of the Commonwealth government within two months. Last week at a conference in London, it said issuance would begin this week. The last such issuance was in 2003 and there is only A$6.0 billion of such bonds outstanding, at original face value.

At the same conference in London, the New Zealand Debt Management Office said it would keep open the option of issuing inflation-linked bonds, noting that the cost of issuance is improving all the time. In the meantime though, it appears that after having had several failed bond tenders this year, NZDMO has decided it might be better to meet investor demand where it exists.

At the end of May, NZDMO said it would undertake market consultation on initiatives to improve liquidity in government bonds. As a result of that consultation NZDMO said it will raise its limit on the acceptance of oversubscriptions on bond tenders to up to 50 per cent of the value of bonds on offer, from the current cap of 25 per cent. This will bring its practice on bond tenders into line with that for bill tenders.

On Thursday, NZDMO offered two lines of bonds for tender: NZ$250 million of April 2013 bonds and NZ$100 million of May 2021 bonds. The former was oversubscribed 3.5 times and the latter 3.1 times. No oversubscriptions were accepted and weighted average yields achieved were 4.96 per cent and 6.06 per cent, respectively.