Treasury Indexed Bonds will be revamped, to make them more appealing to offshore investors, Anna Hughes, CEO of the Australian Office of Financial Management said yesterday.
The upcoming transition to the ABS publishing a complete monthly measure of CPI is the trigger for this, though the new look Treasury Indexed Bonds may not be in full bloom in the AOFM’s funding program until 2027.
“The last 12 to 18 months has been particularly challenging for the market” Hughes said in a speech to Australian Business Economists in Sydney.
“Changes to excise tax and the implementation of various subsidy schemes, while supporting households, have affected measured inflation adding more disruption and uncertainty to the TIBs market.
“Unlike the UK, there is no natural buyer because current legislation means that linkers remain off-benchmark for defined contribution superannuation schemes. The market also has fewer active participants resulting in a more concentrated investor base.”
While the AOFM does not rely on or need TIBs for funding, Hughes said, “we believe that well-developed financial markets should have a market-based measure of inflation expectations.
“This view is shared by investors, intermediaries as well as the Reserve Bank of Australia and Treasury. We also recognise the importance of the asset class for the largely domestic investor base, who contribute additional diversity to the broader Australian Government securities investor base.
“Given this, we remain committed to supporting the market through stable and consistent issuance.”
One of the challenges to attracting greater offshore interest, Hughes explained, lies in the structural differences between Australian TIBs and those issued in other developed markets.
“Specifically, most offshore sovereign linkers reference a monthly CPI and pay semi-annual coupons. Ours do not” she said.
“Thankfully, the opportunity for change is coming. The Australian Bureau of Statistics has indicated that they are planning to transition to publishing a complete monthly measure of CPI from late 2025.
“This development presents a great opportunity for the Australian market, and we are currently looking at introducing inflation-linked bonds that more closely align with international standards, which should enhance their appeal to offshore investors.”
The first linker line referencing monthly CPI will come no earlier than fiscal 2026/27.
This will provide time for the ABS to bed down its production schedule and for markets to gain some experience trading the higher frequency data before the AOFM brings its first line to market.
Hughes said that “Looking ahead to the day when we launch our new TIB referencing monthly CPI, it is likely to have a maturity of around 10 years.
“We’re confident that both the existing TIBs, which reference quarterly CPI, and the new TIBs can coexist in the market.”
Hughes also outlined a revamp of the AOFM executive, appointing a deputy CEO, Katina Kikitis, and a Chief Operating Officer, Julia Hendrikson.