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The Euromoney Australian
Debt Capital Markets Forum
Australian Government Securities
September 2010
Neil Hyden
Chief Executive Officer
2
Australia
Quick Facts
 World’s 13th largest economy with a GDP of USD 1.1 trillion
 Population: 22.4 million
 Unemployment rate: 5.1%
 Cash rate: 4.5%
 CPI inflation rate: 3.1% (yoy headline), 2.7% (yoy underlying)
 The AUD is the 5th most traded currency and the AUD/USD is the 4th most traded
currency pair
 Exchange rate: AUD/USD 0.9330 (14 September 2010)
Source: Bloomberg, BIS, IMF
3
Australian Government Credit
Fitch::
AAA, stable, F1+
Moody’s:
Aaa, stable, P-1
S&P:
AAA, stable, A-1+
 One of 18 S&P AAA (stable) rated countries in the world
 One of 14 S&P AAA (stable) rated countries issuing government bonds on a regular basis
 One of 8 S&P AAA (stable) rated countries with more than USD 100 billion bonds on issue
Source: Fitch, Moody’s, S&P
4
GDP growth
Quarterly GDP change (chain volumes)
8
Year-ended GDP change (chain volumes)
Per cent
Per cent
8
Forecast
6
6
4
4
2
2
0
0
-2
-2
-4
1988
-4
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Source: Australian Bureau of Statistics, Treasury
5
Contributions to GDP growth
Source: Treasury
6
Australia’s terms of trade
130
Index
Index
130
120
120
110
110
100
100
90
Forecast
90
80
80
70
70
60
60
50
50
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Source: Australian Bureau of Statistics, Treasury
7
Contributions to nominal GDP growth
Source: Treasury
8
Business investment
Per cent of GDP
Source: Treasury
9
Exports by destination
35%
China
Share
Japan
India
EU27
US
Share
35%
30%
30%
25%
25%
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
1988
1990
1992
1994
1996
1998
2000
2002
2004
Share of total merchandise exports
2006
2008
2010
Source: Australian Bureau of Statistics
10
Current account and trade balances
1.5
Current Account
Per cent of GDP
Trade Balance
Per cent of GDP
1.5
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
-1.0
-1.0
-1.5
-1.5
-2.0
-2.0
-2.5
-2.5
-3.0
-3.0
-3.5
-3.5
-4.0
-4.0
-4.5
-4.5
-5.0
-5.0
-5.5
-5.5
Forecast
1.0
-6.0
-6.5
-7.0
-6.0
-6.5
-7.0
1990-91
1992-93
1994-95
1996-97
1998-99
2000-01
2002-03
2004-05
2006-07
2008-09
2010-11
Source: Australian Bureau of Statistics, Treasury
11
A growing population
2.5
Population (RHS)
Per cent
Annual Growth Rate (LHS)
Million
23
22
2.0
21
20
1.5
19
18
1.0
17
16
0.5
15
0.0
14
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Source: Australian Bureau of Statistics
12
A healthy banking sector
10,000
Total assets, $US billion, log scale
Total assets, $US billion, log scale
10,000
Australia's four largest banks
1,000
1,000
100 largest global banks by assets
NR
BBB-
BBB
BBB+
A-
1
A
1
A+
10
AA-
10
AA
100
AAA
100
Source: Bloomberg, S&P
13
Low arrears on housing loans
Non-performing housing loans
Source: Reserve Bank of Australia – March 2010 Financial Stability Review
14
Housing loan approvals for new dwellings
3.5
$ billion
$ billion
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
1990
1992
1994
1996
1998
2000
2002
Monthly approvals
2004
2006
2008
2010
Source: Australian Bureau of Statistics
15
Headline and underlying inflation (CPI)
Headline Inflation rate
7
Underlying Inflation rate
Per cent YoY
Per cent YoY
7
Forecast
6
6
5
5
4
4
3
3
2
2
1
1
0
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: Australian Bureau of Statistics, Treasury
16
Overnight cash rates
8.00
Per cent
Per cent
7.50
RBA Overnight Cash Rate
8.00
7.50
ECB Main Refinancing Rate
7.00
Bank of Canada Overnight Lending Rate
7.00
6.50
Bank of England Official Bank Rate
6.50
6.00
US Federal Funds Target Rate
6.00
Bank of Japan Target Overnight Call Rate
5.50
5.50
5.00
5.00
4.50
4.50
4.00
4.00
3.50
3.50
3.00
3.00
2.50
2.50
2.00
2.00
1.50
1.50
1.00
1.00
0.50
0.50
0.00
0.00
2004
2005
2006
2007
2008
2009
2010
Source: Bloomberg
17
Liquidity of the Australian dollar
100%
USD
EUR
JPY
GBP
AUD
CHF
CAD
100%
70%
70%
60%
60%
50%
50%
40%
40%
30%
30%
20%
10%
AUD, 7.6%
80%
AUD, 6.6%
80%
AUD, 6.0%
90%
AUD, 4.3%
90%
0%
20%
10%
0%
2001
2004
2007
2010
Proportion of Global FX Turnover
Note: Because two currencies are involved in each
transaction, the shares sum to 200%.
Source: BIS (Triennial Central Bank Survey of Foreign Exchange
and Derivatives Market Activity in 2010)
18
The AUD/USD is the 4th most traded currency pair
USD/EUR
1,200
USD/JPY
USD/GBP
USD/AUD
USD/CAD
USD billion / day
USD/CHF
USD billion / day
1,000
1,000
200
USD/AUD, $249
USD/AUD, $51
600
USD/AUD, $185
800
USD/AUD, $107
800
400
1,200
600
400
200
0
0
2001
2004
2007
2010
Global FX market turnover by currency pair
Source: BIS (Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity in 2010)
19
Australian Government budget balance
2
Per cent of GDP
Per cent of GDP
Forecast
2
1
1
0
0
-1
-1
-2
-2
-3
-3
-4
-4
-5
-5
Jun 2001
Jun 2004
Jun 2007
Jun 2010
Jun 2013
Jun 2016
Jun 2019
Source: Treasury
20
Australian Government net debt
8
Per cent of GDP
Per cent of GDP
Forecast
8
6
6
4
4
2
2
0
0
-2
-2
-4
-4
-6
-6
Jun 2001
Jun 2004
Jun 2007
Jun 2010
Jun 2013
Jun 2016
Jun 2019
Source: Treasury
21
160
140
Per cent of GDP
2009
Government net debt
2010
2011
Per cent of GDP
2015
160
140
120
120
100
100
80
80
60
60
40
40
20
20
0
0
Australia Canada Germany
UK
France
US
General government net debt (% GDP)
Italy
Japan
Source: Treasury, IMF World Economic Outlook
22
Australian Government bonds on issue
200
$ billion
$ billion
Forecast
200
180
180
160
160
140
140
120
120
100
100
80
80
60
60
40
40
20
20
0
0
Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14
Source: Australian Office of Financial Management, Treasury
23
Australian Government Securities
$140
$120
$ billion
Treasury Notes
Treasury Indexed Bonds
Treasury Bonds
$12
$ billion
$12
$11.4
$124.7
$10
$10
$ billion
$11.0
$100
$8
$8
Outstanding June
2009-10
Outstanding June
2009-10
$80
Planned Issuance
2010-11
$60
$6
Planned Issuance
2010-11
$56.0
$20
$2
$0
$0
Outstanding June
2009-10
$4
$4
$40
$6
$4.0
$2
$0
Source: Australian Office of Financial Management
24
Treasury Bonds at September 2010
Treasury Bonds outstanding end June 2010
20
Additional Treasury Bonds issued to September 2010
$ billion
$ billion
18
18
May 13
16
16
Apr 12
14
12
20
Feb 17
Apr 15
14
Mar 19
Jun 14
Jun 11
12
May 21
Apr 20
10
10
8
8
Nov 12
6
6
Dec 13
Jul 16
4
2
Jul 22
2
Oct 14
0
Jun 10
4
0
Jun 12
Jun 14
Jun 16
Jun 18
Jun 20
Jun 22
Maturity date
Source: Australian Office of Financial Management
25
Treasury Bond turnover
250
$ billion
$ billion
250
200
200
150
150
100
100
50
50
0
0
Jan-08
Jul-08
Jan-09
Jul-09
Monthly turnover
Jan-10
Jul-10
Source: Reserve Bank of Australia
26
Treasury Bond repo activity
18
$ billion
$ billion
18
16
16
14
14
12
12
10
10
8
8
6
6
4
4
2
2
0
0
Jan-08
Jul-08
Jan-09
Jul-09
Monthly turnover
Jan-10
Jul-10
Source: Reserve Bank of Australia
27
Treasury Bond futures market
3Yr Treasury Bond futures
400
10Yr Treasury Bond futures
$ billion
$ billion
400
350
350
300
300
250
250
200
200
150
150
100
100
50
50
0
0
Jan 2008
Jul 2008
Jan 2009
Jul 2009
Monthly turnover
Jan 2010
Jul 2010
Source: Sydney Future Exchange
28
Sovereign yield curves
Australia
6.00
Canada
Eurozone
Japan
UK
US
Per cent
Per cent
6.00
5.50
5.50
5.00
5.00
4.50
4.50
4.00
4.00
3.50
3.50
3.00
3.00
2.50
2.50
2.00
2.00
1.50
1.50
1.00
1.00
0.50
0.50
0.00
0.00
3m
6m
1yr
2yr
3yr
4yr
5yr
6yr
7yr
8yr
9yr
10yr 11yr 12yr
Source: Bloomberg
29
Treasury Indexed Bonds
6
$ billion
$ billion
6
Indicative Treasury Indexed Bond issuance during 2010-11
Treasury Indexed Bonds outstanding end June 2010
5
5
4
4
3
3
2
2
1
1
0
0
Aug-2015
Aug-2020
Sep-2025
Sep-2030
Source: Australian Office of Financial Management
30
Turnover of Treasury Indexed Bonds
16
$ billion
$ billion
16
14
14
12
12
10
10
8
8
6
6
4
4
2
2
0
0
Jan-08
Jul-08
Jan-09
Jul-09
Monthly turnover
Jan-10
Jul-10
Source: Reserve Bank of Australia
31
Treasury Indexed Bonds repo activity
5.0
$ billion
$ billion
5.0
4.5
4.5
4.0
4.0
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
Jan-08
Jul-08
Jan-09
Jul-09
Monthly turnover
Jan-10
Jul-10
Source: Reserve Bank of Australia
32
Treasury Notes
Outstanding Volume
6,000
Yield
$ million
Per cent
22 Oct 10
4.85
5,000
4.75
4,000
4.65
3,000
26 Nov 10
4.55
24 Sep 10
12 Nov 10
2,000
17 Dec 10
1,000
4.45
21 Jan 11 11 Feb 11
0
Sep 2010
4.35
4.25
Oct 2010
Nov 2010
 Treasury Notes are short term
instruments used to manage
the Government’s short term
cash flows
Dec 2010
Jan 2011
 Terms mostly no longer than six
months
 AUD 16.3 billion on issue at 14
September 2010
Feb 2011
Maturity date
Source: Australian Office of Financial Management
33
Strong international interest
90
160
Non-resident holdings (LHS)
140
Proportion held by non-residents (RHS)
80
70
120
60
100
50
80
40
60
30
Jun 2010
Dec 2009
Jun 2009
Dec 2008
Jun 2008
Dec 2007
Jun 2007
Dec 2006
Jun 2006
0
Dec 2005
0
Jun 2005
10
Dec 2004
20
Jun 2004
20
Dec 2003
40
Share of Foreign Holdings (per cent)
100
Total CGS (LHS)
Jun 2003
Market Value of Holdings ($ billion)
180
Source: Australian Office of Financial Management
34
Disclaimer
The views expressed in this publication are commentary only, and should
not be considered as advice.
You should not act in reliance upon the views expressed but should seek
independent advice.
The Commonwealth of Australia and the authors disclaim responsibility for
loss or damage suffered by any person relying directly, or indirectly, on this
publication, including in relation to negligence or any other default.