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 target for the yield on the 3-year Australian Government bond, the announcement on Tuesday 3 November of a $100 billion bond purchase program to lower longer-term yields, and the announcement on Tuesday 2 February that the Reserve Bank will purchase an additional $100 billion of government bonds under the bond purchase program, purchases of Australian Government Securities (AGS) and semi-government securities (semis) are undertaken in support of these aims and, if required, 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 2.30 pm to 2.35 pm AEST/AEDT for purchases related to the 3-year yield target, and 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 for purchases related to the bond purchase program), the settlement date (two days after the transaction, t+2) and whether the purchases relate to the bond purchase program or to the yield target. If the RBA elects not to purchase 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.

Erroneous offers

Given the time-critical and public nature of its auctions, the Reserve Bank is unable to contact participants during the auction or consider revised offers after the cut-off time for submissions, even in the case where an approach may have been submitted by a participant erroneously. Yieldbroker DEBTS will alert participants if their approach is priced at yields with a spread to mid-market rates of more than 2 basis points for AGS and 5 basis points for semis above prevailing mid-market yields. These are alerts only and participants can submit offers with yields above these thresholds. The Reserve Bank reserves the right to amend these alert levels, subject to market conditions. Participants can also put in place arrangements on Yieldbroker DEBTS to manage thresholds as they see fit. While under no obligation (and without limiting the Reserve Bank's right to accept or reject offers at its absolute discretion), the Reserve Bank will ordinarily reject offers during an auction that the Reserve Bank considers to be, or likely to be, erroneous. An offer will typically be considered to be, or likely to be, erroneous if it has a spread of more than 20 basis points above mid-market rates.

Allocation

Allocation within an individual bond line will be made on the basis of yield. Allocation between bond lines will be made on a relative value basis, subject to the Reserve Bank's discretion, and for the states and territories will also be guided by the stock of debt outstanding.

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 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. Data on the Reserve Bank's outright holdings of Government Securities are published in Statistical Table A3.1 on the Reserve Bank website. No information regarding the identities of the Reserve Bank's counterparties is made public.

Securities Lending and Switch Transactions

To aid market functioning, the Reserve Bank stands ready to lend securities that it owns against cash or eligible collateral on a reverse enquiry basis; pricing is entirely at the discretion of the Reserve Bank and is subject to change. See also the market data services (Reuters – RBA38, RBA39 and RBA40; Bloomberg – RBAO6 and RBAO9). The Reserve Bank also operates a Securities Lending Facility on behalf of the Australian Office of Financial Management (AOFM). The Reserve Bank will also consider proposals to sell government bonds that it owns outright against an offsetting (duration-neutral) purchase of government bonds, although accepting such a proposal will be entirely at the discretion of the Reserve Bank, and the Reserve Bank will typically charge a spread relative to mid market rates. The Reserve Bank publishes details of its outright holdings of government bonds in Statistical Table A3.1.

Endnotes

Details of Reserve Bank purchases of Government Securities were also announced on 19 March 2020, 3 November 2020 and 2 March 2021. [1]