Federal Treasury was seeking to focus the Government on Australia's bond market liquidity challenge within days of the federal election, newly released material shows.
The material, from Treasury's 2010
post-election advice to the Government, shows Treasury was concerned about maintaining a liquid market in Commonwealth Government securities. A shortage of CGS is predicted to occur some time after the forecast peak in government debt in 2012-13. The government faced the same problem in the mid-2000s.
It was seeking to bring together officials from Treasury and the RBA with outside experts to discuss the issue, the briefing material said.
The briefing material says a liquid CGS plays an important role by maintaining a benchmark risk-free rate, providing a safe haven for capital, and easing access to capital markets for future government borrowing.
Though the briefing material does not mention it, market liquidity is expected to be further constrained in the coming years by the new liquidity rules, required under the Basel III global banking framework, which will force banks to hold more CGS.