Government Bond Purchases

In its long-dated outright transactions, the Reserve Bank purchases government securities with terms to maturity generally greater than 18 months. Prior to March 2020, the Reserve Bank typically undertook these transactions on a quarterly basis to replenish the holdings of securities used for liquidity management purposes. Following the announcement on 19 March 2020 of a comprehensive support package, purchases of Australian Government bonds (AGS) and semi-government securities (semis) are undertaken to achieve a target for the yield on 3-year Australian Government bonds of around 0.25 per cent, as well as to address market dislocations.[1]

Announcements

Long-dated outright transactions are conducted through multi-price auctions over Yieldbroker DEBTS. Auctions for the Reserve Bank to purchase government bonds in the secondary markets are scheduled on Mondays, Wednesdays and Thursdays. The Reserve Bank announces its intentions for government security purchases at 11.15 am (AEST/AEDT) via Yieldbroker DEBTS and on Reuters – RBA27; Bloomberg – RBAO8 on the day of purchase.

The announcement indicates the total face value (AUD) and specific securities the RBA is willing to purchase, the time within which offers are to be submitted (typically from 3.25 pm to 3.30 pm AEST/AEDT for AGS and at different times between 2.30 pm and 3.35 pm AEST/AEDT for Semis) and the settlement date (two days after the transaction, t+2). If market conditions do not warrant RBA purchases on any of the days specified above, the announcement states a ‘NOT TO PURCHASE’ intention on Reuters – RBA27; Bloomberg – RBAO8.

The RBA may vary this schedule if necessary.

Eligible Counterparties

All RITS members deemed eligible to participate in the Reserve Bank's domestic market operations may participate in the Reserve Bank's long-dated outright auctions.

Approaches

Approaches are made over Yieldbroker DEBTS. Offers are to be made in absolute yields in quarter basis point increments, with a minimum offer of $5 million face value and increments of $1 million. Participants that encounter difficulties in submitting their approaches over that system should directly contact Yieldbroker DEBTS and also inform the Reserve Bank's Domestic Markets Desk by email.

Offers cannot be submitted, changed or withdrawn after the cut-off time for submissions has passed.

Allocation

Allocation of the operation is made on a relative value basis, subject to the Reserve Bank's portfolio considerations.

Approaches may be partially filled. Multiple successful approaches for a given security at the same yield are filled on a pro-rata basis.

An approach exceeding the total transaction amount indicated by the Reserve Bank for the operation is regarded as equal to the total transaction amount for determining pro-rata allocations.

Approaches that are partially filled are rounded up to the nearest million dollars.

Notification

All participants are notified promptly of the success or otherwise of their approach via Yieldbroker DEBTS.

Aggregated results are published on market data services (Reuters – RBA28; Bloomberg – RBAO8) shortly after the operation, and on the RBA website. Historical results are published in Statistical Table A3 on the Reserve Bank website. These include the issuer and series, face value and weighted average and cut-off yields for each security purchased. No information regarding the identities of the Reserve Bank's counterparties is made public.

Securities Lending

The Reserve Bank stands ready to lend securities from its portfolio against AGS and semis (i.e. general collateral) at market rates on a reverse enquiry basis. The Reserve Bank also operates a Securities Lending Facility on behalf of the Australian Office of Financial Management (AOFM).

Endnotes

Details of Reserve Bank purchases of Government Securities were also announced on 19 March. These details are covered below with updated information on announcements following the Governor's speech on 21 April. Data on the Reserve Bank's outright holdings of Government Securities are published in Statistical Table A3.1 on the Reserve Bank website. [1]