Australian Government, the Australian Office of Financial Management


Accrued interest

The accumulation of interest since the last interest payment date. Accrued interest is added to the clean price of a bond to determine the total price (or dirty price) of a bond.

Austraclear System

The Austraclear system is an electronic registry and settlement system for government, semi-government and private sector debt securities. It is a wholly owned subsidiary of ASX Limited. Treasury Notes and Treasury Bonds issued at tender are settled via the Austraclear System.

Australian Savings Bond

A debt security aimed at retail investors issued by the Australian Government from 1976 until 1987. The bonds were sold ‘on tap' and had a maximum maturity of around 7.5 years. The security could be redeemed early at the request of the holder on a month's notice and without penalty after a minimum holding period.

Basis point

One hundredth of one per cent or 0.01 per cent. The term is used in money and securities markets to define differences in interest rates or yields.

Basis risk

The risk that there is a divergence in the price response of financial instruments with similar risk characteristics to changes in market rates (for example, a bond and the corresponding bond futures contract). This is a risk with hedging strategies where a financial position in one particular instrument is hedged with a position in another instrument with similar risk characteristics, such that any loss in one position from changes in market rates is expected to be offset by a corresponding gain on the other position. A hedge may not be as effective as expected if there is a divergence in the price response of the financial instruments.

Bearer securities

A negotiable instrument, akin to cash, which evidences a payment obligation to be met, on presentation, at designated dates. The issuer of the instrument does not record the identity of the security holder, and as such physical possession of the certificate is sufficient proof of ownership. The certificates for bonds issued as bearer securities normally carry detachable coupons. In the past some Commonwealth Government securities were issued in bearer form.

Bid-offer spread

The difference between the price (or yield) at which a market maker is willing to buy and sell a particular financial product or instrument.

Bid-to-cover ratio

See coverage ratio.

Clean price

The price of a bond excluding accrued interest.

Commonwealth Government securities (CGS)

Refers to debt obligations of the Australian Government evidenced by the issue of securities. The vast bulk of the CGS on issue is represented by Treasury Bonds and Treasury Indexed Bonds.

Communications Fund

A fund established to provide an income stream to fund the Australian Government's response to reviews of the adequacy of the telecommunications services in regional, rural and remote parts of Australia. The reviews are prepared by the Regional Telecommunications Independent Review Committee.


The interest payment on a bond. In the case of Treasury Bonds coupon interest is payable semi-annually.

Coverage ratio

The ratio of the total amount of bids received to the amount on offer at a tender for the issue of Commonwealth Government Securities. Also referred to as the bid-to-cover ratio.

Credit risk

The risk of financial loss arising from a counterparty to a transaction defaulting on its financial obligations under that transaction. Credit risk is contingent on both a default taking place and there being pecuniary loss as a result. The Australian Government faces credit risk as a part of its debt management activities in relation to its swap derivative transactions.


Arrangements whereby a set of debt liabilities are held against a set of assets with closely matching and offsetting cost and risk characteristics.


A financial contract whose value is based on, or derived from, another financial instrument (such as a bond or share) or a market index (such as a share index). Examples of derivatives include futures, forwards, swaps and options.

Dirty price

The total price payable for a bond calculated as the clean price plus accrued interest.


The amount by which the value of a security is less than its face, or par, value.


A measure of the present value weighted average of the cash flows associated with a bond or portfolio of bonds. Quoted in years, duration can be used to measure the sensitivity of the present value of a bond or portfolio of bonds to changes in market interest rates.

Face value

The amount of money indicated on a security, or inscribed in relation to a security, as being due to be paid on maturity.

Financial year

The 12-month period decided upon for financial measurement. For the Australian Government the financial year is from 1 July to 30 June in the following calendar year.

Funding risk

The risk that an issuer is unable to raise funds, as required, in an orderly manner and without financial penalty. For the Australian Government funding risk encompasses both long-term fund raising to cover budget deficits and the short-term funding or cash management implications of mismatches in the timing of government outlays and receipts.

Future Fund

The Future Fund is a financial asset fund established by the Australian Government with the purpose of accumulating sufficient financial assets to fully offset the Government's unfunded public sector superannuation liability. The stated aim is to reach this point by 2020.

Futures baskets

A collection of like financial products or commodities, grouped together to underpin a particular futures contract. For example, 3- and 10-year Treasury Bond futures baskets consist of a collection of Treasury Bond lines that have an average term to maturity of approximately 3 and 10 years respectively.

Futures contract

An agreement between two parties that commits one party to buy an underlying financial instrument or commodity and one party to sell a financial instrument or commodity at a specific price at a future date. The agreement is completed at a specified expiration date by physical delivery or cash settlement or offset prior to the expiration date. In Australia standardised futures contracts are traded on the Sydney Futures Exchange. Futures contracts traded on the Sydney Futures Exchange include contracts for 3-year and 10-year Treasury Bonds.

General government sector net debt

The sum of selected financial liabilities less the sum of selected financial assets on the general government sector balance sheet. It is the sum of financial liabilities in the form of deposits held, advances received, outstanding government debt securities, and other borrowings less financial assets in the form of cash held, deposits and advances paid, debt securities held as an investment, and loans advanced.

Interest rate swap

An agreement between two parties to swap interest payments. It usually involves one party exchanging a stream of fixed interest cash flows for a stream of floating interest cash flows.

Liquidity risk

The risk that arises from the difficulty of selling an asset or buying back a financial liability. The AOFM faces liquidity risk with respect to transactions in existing Australian Government debt, such as debt repurchases prior to maturity, and restructuring the interest rate swap portfolio it manages.

Market risk

The risk that the price (value) of a financial instrument or portfolio of financial instruments will vary as market conditions change. In the case of a debt issuer such as the AOFM, the principal source of market risk is from changes in interest rates. For example, once debt has been issued, interest rates may move such that either debt servicing costs increase directly or the opportunity to reduce debt servicing costs is missed.

Market value

The amount of money for which a security trades in the market at a particular point in time.

Modified duration

A measure of the sensitivity of the market value of a debt security or portfolio of debt securities to a change in interest rates. It is measured as the percentage change in market value in response to a one percentage point change in nominal interest rates. Modified duration is the primary risk parameter used by the AOFM. Portfolios with higher modified durations have more stable interest costs through time but have a more volatile market value through time.

Net debt portfolio

The AOFM's net debt portfolio comprises Commonwealth Government Securities on issue (net of Australian Government holdings), term deposits at the Reserve Bank of Australia, and interest rate swaps administered by the AOFM. This portfolio represents a subset of Australian Government general government sector net debt.

Nominal debt

Debt that is not indexed to inflation. Treasury Notes and Treasury Bonds are examples of nominal debt.

Operational risk

The risk of loss, whether direct or indirect, arising from inadequate or failed internal processes, people or systems, or from external events. It encompasses risks inherent in the agency's operating activities such as fraud risk, settlement risk, legal risk, accounting risk, personnel risk and reputation risk.

Overdue securities

Securities which have passed their maturity date but remain unpresented by stockholders. Overdue securities issued the Australian Government are predominately in the form of Treasury Bonds, Australian Savings Bonds and War Savings Certificates. The Australian Government repays the amount due when the stock is presented for payment. No interest accrues on the stock following its maturity date.


See face value.

Redemption yield

The rate of interest at which all future payments (coupons and principal) on a bond are discounted so that their total equals the current dirty price of the bond.

Repurchase agreement (repo)

An agreement under which the seller of a security agrees to buy it back at a specified time and price. The AOFM securities lending facility operates through repurchase agreements.

Repricing risk

The risk that interest rates have increased when maturing debt needs to be refinanced. Whenever the AOFM enters the market to borrow funds, it is exposed to repricing risk. Similarly, the use of interest rate swaps to reduce the duration of the portfolio, by receiving a fixed rate and paying a floating rate, increases the level of repricing risk.

Reserve Bank of Australia (RBA)

The Reserve Bank of Australia is Australia's central bank. The RBA's main responsibility is monetary policy. Other major roles are maintaining financial system stability and promoting the safety and efficiency of the Australian payments system. It also serves as banker to the Australian Government.

Risk premium

The difference between the return available on a risk-free asset and the return available on a riskier asset.

Secondary market

Market where securities are bought and sold subsequent to original issuance, which took place in the primary market.

Short-dated exposure

A measure of the proportion of the AOFM net debt portfolio subject to immediate repricing. After allocating each cash flow within the net debt portfolio proportionally to the nearest two annual pricing points, the share of the portfolio's market value allocated to the zero-year pricing point is the short-dated exposure. For example, a liability due to mature in one day would be allocated almost entirely to the zero-year pricing point, while 50 per cent of a bond with six months to maturity would be allocated to the zero-year pricing point. The net interest cost of debt portfolios with higher short-dated exposures responds more quickly to movements in market interest rates, all else being equal.

Securities Lending Facility

The AOFM lends Treasury Bonds to eligible parties through a securities lending facility operated on behalf of the AOFM by the Reserve Bank of Australia (RBA). This activity is aimed at alleviating temporary market shortages of specific lines of Treasury Bonds. The facility operates through repurchase agreements between the RBA and bond market participants.

Special Bond

A retail debt instrument issued by the Australian Government from 1959 to 1976 which was sold on tap and with an original maturity of around 7.5 years. The instrument was the forerunner of the Australian Savings Bond.


A financial transaction in which two counterparties agree to exchange streams of payments occurring over time according to predetermined rules.

Tax Free Stock (TFS)

Stock with no fixed date of maturity issued by the New South Wales, Victorian and South Australian Governments prior to 1 January 1924. Under the Financial Agreement Act 1994, Tax Free Stock is administered by the Australian Government on behalf of State governments.


The tenor of a financial instrument is another name for its term to maturity.

Treasury Adjustable Rate Bond (TAB)

A medium-term debt security issued by the Australian Government from 1994 to 1997 that carried an interest rate adjusted quarterly in line with movements in the bank bill swap reference mid-rate, payable on the face value of the security. TABs were repayable at face value on maturity.

Treasury Bond

A medium- to long-term debt security issued by the Australian Government that carries an annual rate of interest (the coupon) fixed over the life of the security, payable in six monthly instalments (semi-annually) on the face, or par, value of the security. The bonds are repayable at face value on maturity.

Treasury Indexed Bond

A medium- to long-term debt security which was issued by the Australian Government in two forms (Capital Indexed and Interest Indexed) from 1985 until 2003. With Capital Indexed Bonds, the nominal value of the security, on which a fixed rate of interest applies, varies over time according to movements in the Consumer Price Index (CPI). At maturity, the adjusted capital value of the bonds is paid. Interest Indexed Bonds have all matured. Interest on these bonds varied over time according to movements in the CPI. The bonds were repayable at face value on maturity.

Treasury Note

A short-term debt security issued by the Australian Government at a discount and redeemable at par on maturity. The ‘interest' payable on the Notes is represented by the difference between their issue value and their par or face value. Treasury Notes are issued to cover short-term mismatches between the Australian Government's outlay and revenue streams that cannot be funded by other means, such as changes in the AOFM's holdings of term deposits with the Reserve Bank of Australia.

War Savings Certificates (WSC)

War Savings Certificates were securities issued by the Australian Government in bearer form to raise funds during the World Wars. The securities had maturities ranging from 3 to 10 years in the case of the First World War and 5 to 7 years in the case of the Second World War. Certificates were issued at a discount, with interest being incorporated in the face value of the certificate payable at maturity. All outstanding War Savings Certificates War Savings Certificates are now overdue securities.

Weighted Average Issue Yield

The weighted average of yields for successful bids in a tender for the issue Commonwealth Government Securities. Yields are weighted by the share of the total amount sold that is allotted to each successful bidder.


The expected rate of return expressed as a percentage of the net outlay or net proceeds of an investment, not of its face value.

Yield curve

The graphical representation of the relationship between the yield on debt securities of the same credit quality but different maturities.

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