Reserve Bank Purchases of Government Securities

Following the completion of the $200 billion bond purchase program set out in the Governor's Statements of 3 November 2020 and 2 March 2021, the Reserve Bank will purchase Australian Government securities (AGS) and securities issued by the state and territory central borrowing authorities (semis) in the secondary market at a rate of $4 billion per week until at least 11 November 2021, as set out in the Governor's Statement of 6 July 2021.

The allocation of bond purchases is planned to be 80 per cent AGS and 20 per cent semis. Purchases will be conducted on Monday, Wednesday and Thursday of each week, excluding public holidays. Purchases of AGS ranging from the November 2024 bond through to AGS with residual maturity of around 7 years are planned for Mondays, and purchases of AGS with residual maturity of around 7 to 10 years are planned for Thursdays. Semis purchases are planned for Wednesdays and will cover bonds maturing from July 2024 through to bonds with a residual maturity of around 10 years. The size of the auctions for AGS will be $1.6 billion and the size of the auctions for semis will be $0.8 billion. These purchases will be conducted via multi-price auctions. The Bank will closely monitor the impact of purchases on market functioning and will adjust the auctions if necessary, including their size, composition and timing.

The Reserve Bank will also continue to purchase government securities, as needed, to ensure that the yield on the April 2024 Australian Government bond remains consistent with the Board's target and to address any market dislocations in the shorter end of the yield curve. These purchases will be announced as relating to the yield target, and will not form part of the bond purchase program described above.

The bond purchase program will involve purchasing fixed-rate, nominal bonds issued by the Australian Government and states and territories. Inflation-indexed bonds will not be purchased under the program. The Reserve Bank will exclude from purchases any bond lines that the Bank is aware had recently been tapped by the issuing authority or are newly issued bonds.

Announcements

The Reserve Bank will announce its intentions for government securities purchases at 11.15 am (AEST/AEDT) on the day of purchase via Yieldbroker DEBTS. The announcement will indicate the total face value (AUD) and specific securities the Reserve Bank is willing to purchase, the time within which offers are to be submitted, the settlement date (T+2), and whether the purchases relate to the bond purchase program or to the yield target.

A less detailed notification of the operation will also be provided via the market data services (Reuters – RBA27; Bloomberg – RBAO8) at the same time.

Eligible Counterparties

All RITS members deemed eligible to participate in the Reserve Bank's domestic market operations may participate in the auctions (see Eligible Counterparties).

Approaches

Approaches are to be 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 who encounter difficulties in submitting their offers 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 will be notified promptly of the success or otherwise of their offers via Yieldbroker DEBTS.

Aggregated results will be published on market data services shortly after the auction, 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 will be 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. 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.

Reserve Bank of Australia
6 July 2021