Download Commonwealth Debt Management 1996-97

THE SECONDARY MARKET FOR CGS —
MOVEMENTS IN YIELDS
Despite considerable through-the-year volatility, the yield on the 10 year
benchmark Commonwealth Treasury Fixed Coupon Bond ended the year
around 170 basis points below levels at the beginning of 1996-97, (see
Chart 14). The 10 year bond yield troughed at 6.93 per cent in mid-June 1997,
around 2 percentage points lower than the peak in early July 1996. At the
shorter end of the curve, the yield on the 3 year benchmark Treasury Fixed
Coupon Bond followed a similar pattern, falling by around 240 basis points
between early July 1996 and end-June 1997.
Chart 14: Australian 3 and 10 Year Benchmark Bond Yields, 1996-97
9.0
Per cent
8.5
8.0
7.5
7.0
6.5
10 Year Benchmark Bonds
16/06/97
29/05/97
14/05/97
29/04/97
14/04/97
26/03/97
11/03/97
7/02/97
24/02/97
22/01/97
7/01/97
18/12/96
3/12/96
1/11/96
18/11/96
1/10/96
17/10/96
16/09/96
30/08/96
15/08/96
31/07/96
1/07/96
5.5
16/07/96
6.0
3 Year Benchmark Bonds
The rally in Australian bond yields was reflected in a marked downward shift in
the Commonwealth yield curve over the year as shown in Chart 15.
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Commonwealth Debt Management
Chart 15: Commonwealth Yield Curves, 1996-97
9.0
Per cent
1-Jul-96
8.5
8.0
7.5
3-Jan-97
7.0
30-Jun-97
6.5
6.0
5.5
12 Year
10 Year
9 Year
8 Year
7 Year
6 Year
5 Year
4 Year
3 Year
2 Year
1 Year
6 Mth
3 Mth
5.0
As depicted in Chart 16, Australian, New Zealand and Canadian 10 year bond
yields followed a broadly similar pattern to US 10 year bond yields over the
course of the year. However, bond yields in these countries ended the year
appreciably lower, while in the US, yields were only marginally lower than at
the beginning of 1996-97.
Chart 16: Yields on Benchmark 10 Year Government Bonds, 1996-97
9.0
Per cent
8.5
8.0
7.5
7.0
6.5
Australia
US
Canada
23/6/97
5/6/97
2/5/97
20/5/97
16/4/97
31/3/97
12/3/97
24/2/97
6/2/97
21/1/97
3/1/97
16/12/96
28/11/96
12/11/96
9/10/96
23/9/96
5/9/96
20/8/96
2/8/96
17/7/96
1/7/96
5.5
25/10/96
6.0
New Zealand
In light of this, as shown in Chart 17, the differential between Australian and
US bond yields narrowed sharply from around 200 basis points at the
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Commonwealth Debt Management 1996-97
beginning of the financial year, to around 110 basis points in early
January 1997 and to around 50 basis points by 30 June 1997.
Chart 17: Australian/US 10 Year Benchmark Bond Differential, 1996-97
Per cent
2.0
1.5
1.0
23/6/97
5/6/97
2/5/97
20/5/97
16/4/97
31/3/97
12/3/97
24/2/97
6/2/97
21/1/97
3/1/97
16/12/96
28/11/96
12/11/96
9/10/96
23/9/96
5/9/96
2/8/96
20/8/96
17/7/96
1/7/96
0.0
25/10/96
0.5
Chart 18 depicts the movement in real bond yields over 1996-97, as evidenced
by yield movements in the August 2020 TIB. Spreads between all TIB stocks
on issue remained fairly constant throughout the year.
Chart 18: Real Yields on TIBs in 1996-97
5.0
Per cent
4.9
4.8
4.7
4.6
4.5
4.4
4.3
4.2
30/06/97
18/06/97
5/06/97
26/05/97
14/05/97
2/05/97
21/04/97
9/04/97
25/03/97
12/03/97
28/02/97
18/02/97
6/02/97
24/01/97
14/01/97
2/01/97
17/12/96
5/12/96
25/11/96
13/11/96
1/11/96
22/10/96
4.0
10/10/96
4.1
Aug 2020
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Commonwealth Debt Management
Chart 19 depicts the margin below Bank Bill yields at which the two TAB
lines  the March 1998 and the October 2000  traded over the course of
1996-97. Both TAB lines traded at very similar margins below Bank Bills. In
the first three quarters of the financial year, the trading margins for both lines
remained in a very tight band of between 12 basis points and 14 basis points
below Bank Bills. Through April and May, both trading margins consistently
widened until they reached around 22 basis points in early June.
On 10 June 1997, the RBA announced changes to the Prime Assets
Requirement (PAR), with effect from 23 June: the PAR ratio was reduced to
3 per cent from 6 per cent and the definition of eligible assets was widened to
include Australian dollar denominated securities issued by the central
borrowing authorities of State and Territory Governments
(ie, semi-government bonds). These changes saw some narrowing of trading
margins through to end-June.
Chart 19: Treasury Adjustable Rate Bonds — Trading Margin
Below Bank Bill Yields, 1996-97
-10
Basis points
-12
-14
-16
-18
-20
Mar-98 TAB
18/06/97
02/06/97
15/05/97
29/04/97
11/04/97
26/03/97
10/03/97
20/02/97
04/02/97
17/01/97
01/01/97
16/12/96
28/11/96
12/11/96
25/10/96
09/10/96
23/09/96
05/09/96
20/08/96
02/08/96
17/07/96
-24
01/07/96
-22
Oct-00 TAB
Movements in Treasury Note yields in 1996-97 were, as usual, influenced by
prevailing conditions in the money market. Successive easings in monetary
policy implemented by the RBA through the course of the year reduced the
target cash rate from 7.5 per cent to 5.5 per cent, through four cuts of 50 basis
points. Accordingly, Treasury Note yields (and Bank Bill yields) fell throughout
the year. Treasury Note yields began the year at around 7½ per cent and had
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Commonwealth Debt Management 1996-97
declined to just under 6 per cent by the start of January 1997. Over the second
half of the year, yields declined further to be around 5¼ per cent at
30 June 1997.
Yields on Treasury Notes and the equivalent Bank Bill rates recorded through
1996-97 are depicted in Chart 20.
5
5.0
6
Weighted Average Yield for Notes
05/03/97
12/02/97
22/01/97
31/12/96
11/12/96
20/11/96
30/10/96
09/10/96
18/09/96
28/08/96
07/08/96
17/07/96
18/06/97
5.5
18/06/97
6.0
18/06/97
6.5
28/05/97
7.0
28/05/97
7.5
28/05/97
Per cent
07/05/97
26 Week Notes and 180 Day Bank Bills
07/05/97
5.5
07/05/97
6.0
16/04/97
6.5
16/04/97
7.0
16/04/97
7.5
26/03/97
Per cent
26/03/97
05/03/97
12/02/97
22/01/97
31/12/96
11/12/96
20/11/96
30/10/96
09/10/96
18/09/96
28/08/96
07/08/96
17/07/96
13 Week Notes and 90 Day Bank Bills
26/03/97
05/03/97
12/02/97
22/01/97
31/12/96
11/12/96
20/11/96
30/10/96
09/10/96
18/09/96
28/08/96
8.0
07/08/96
5.0
17/07/96
8.0
01/07/96
5.0
01/07/96
8.0
01/07/96
Commonwealth Debt Management
Chart 20: Treasury Note and Bank Bill Yields, 1996-97
5 Week Notes and 30 Day Bank Bills
Per cent
7.5
7.0
6.5
6.0
5.5
Bank Bill Mid Rate
Commonwealth Debt Management 1996-97
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