Meeting Financing Needs in

Turbulent Times
Michael Bath
Director, Financial Risk
Australian Office of Financial Management

1
 Agenda

• Background
• Responding to Increased Financing Needs
• Impact of Greater Funding Task Variability
• Lessons

2
 UCB ($A Millions)

-
19

-30,000
-20,000
-10,000
10,000
20,000
30,000
87
19 -88
88
19 -89
89
19 -90
90
19 -91
9
19 1-9
92 2
19 -93
93
19 -94
94
19 -95
95
19 -96
96
19 -97
97
19 -98
98
19 -99
99

Underlying Cash Balance (LHS)

20 -00
00
20 -01
01
20 -02
0
20 2-0
03 3
20 -04
Background

04
20 -05
05
Budget Balance and Debt on Issue

20 -06
Stock of Debt (RHS)
06
20 -07
07
-0
8
-
20,000
40,000
60,000
80,000
100,000
120,000

STOCK OF DEBT ($A Millions)

3
 UCB ($A Millions)

-
19

10,000
20,000
30,000

-30,000
-20,000
-10,000
87
19 -88
88
19 -89
89
19 -90
90
19 -91
91
19 -92
92
19 -93
93
19 -94
94
19 -95
95
19 -96
96
19 -97
9
19 7-9
98 8
19 -99
99

Underlying Cash Balance (LHS)

20 -00
00
20 -01
01
20 -02
02
20 -03
03
Background

20 -04
04
20 -05
Stock of Debt (RHS) 05
Budget Balance and Debt on Issue

20 -06
06
20 -07
07
-0
8
-
20,000
40,000
60,000
80,000
100,000
120,000

STOCK OF DEBT ($A Millions)

4
 UCB ($A Millions)

-
19

-30,000
-20,000
-10,000
10,000
20,000
30,000
87
19 -88
88
19 -89
89
19 -90
90
19 -91
9
19 1-9
92 2
19 -93
93
19 -94
94
19 -95
95
19 -96
96
19 -97
97
19 -98
98
19 -99
99

Underlying Cash Balance (LHS)

20 -00
00
20 -01
01
20 -02
0
20 2-0
03 3
20 -04
Background

04
20 -05
05
Budget Balance and Debt on Issue

20 -06
Stock of Debt (RHS)
06
20 -07
07
-0
8
-
20,000
40,000
60,000
80,000
100,000
120,000

STOCK OF DEBT ($A Millions)

5
 UCB ($A Millions)

-
19

10,000
20,000
30,000

-30,000
-20,000
-10,000
87
19 -88
88
19 -89
89
19 -90
90
19 -91
91
19 -92
92
19 -93
93
19 -94
94
19 -95
95
19 -96
96
19 -97
9
19 7-9
98 8
19 -99
99

Underlying Cash Balance (LHS)

20 -00
00
20 -01
01
20 -02
02
20 -03
03
Background

20 -04
04
20 -05
05
Budget Balance and Debt on Issue

20 -06
Stock of Debt (RHS)
Bonds

06
20 -07
07
of Nominal

-0
Maintenance

8
-
20,000
40,000
60,000
80,000
100,000
120,000

STOCK OF DEBT ($A Millions)

6
 Background
Debt Hedge Portfolio July 2008 - Feb 2009
$million $million
6000 200

150
4000

100

2000
50

0 0
`
-50
-2000 Cash (MV)
Short Term Investments (MV)
-100
Kangaroo Bonds (MV)
-4000 Semi-government Bonds (MV)
-150
Additional Treasury Bonds (MV)
Net Asset Accrual Performance (RHS)
-6000 -200
Aug-2008
Jul-2008

Sep-2008

Oct-2008

Feb-2009
Nov-2008

Dec-2008

Jan-2009
7
 UCB ($A Millions)

-
19

10,000
20,000
30,000
40,000

-40,000
-30,000
-20,000
-10,000
87
19 -88
88
19 -89
8
19 9-9
90 0
19 -91
91
19 -92
92
19 -93
93
19 -94
94
19 -95
9
19 5-9
96 6
19 -97
97
19 -98
98
19 -99
99
20 -00
00
20 -01
01
20 -02
0
20 2-0
03 3
20 -04
Background

04
Underlying Cash Balance (LHS) 20 -05
05
20 -06
06
20 -07
Budget Balance: Forecasts as at May 2008

07
20 -08
0
20 8-0
09 9
20 -10
10
20 -11
11
-1
2
Forecasts

8
 UCB ($A Millions)

-
19

10,000
20,000
30,000
40,000

-40,000
-30,000
-20,000
-10,000
87
19 -88
88
19 -89
89
19 -90
9
19 0-9
91 1
19 -92
92
19 -93
93
19 -94
94
19 -95
95
19 -96
96
19 -97
97
19 -98
98
19 -99
9
20 9-0
00 0
20 -01
01
20 -02
02
20 -03
03
20 -04
Background

04
Underlying Cash Balance (LHS) 20 -05
05
20 -06
06
20 -07
Budget Balance: Forecasts as at Feb 2009

0
20 7-0
08 8
20 -09
09
20 -10
10
20 -11
11
-1
2
Forecasts

9
 Agenda

• Background
• Responding to Increased Financing Needs
• Impact of Greater Funding Task Variability
• Lessons

10
 Yield (% p.a.)

-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
2/01/08
2/02/08
2/03/08
2/04/08
2/05/08
2/06/08
2/07/08
2/08/08

Jun 2011
2/09/08
2/10/08
2/11/08
2/12/08

Mar 2019
2/01/09
2/02/09
2/03/09
2/04/09
2/05/09
Bond Yields Jan 2008 - Oct 2009

Slope of Curve

2/06/09
Financing Needs

2/07/09
2/08/09
Responding to Increased

2/09/09
2/10/09
11
 Responding to Increased
Financing Needs

• Broaden the range of securities on offer

• Increase engagement with investors
• Adopt a flexible and responsive approach to issuance

12
Responding to Increased
Financing Needs

13
 Agenda

• Background
• Responding to Increased Financing Needs
• Impact of Greater Funding Task Variability
• Lessons

14
 Impact of Greater Variability

Exploiting the Term Premium...

7.0

6.5

6.0
Yield (% p.a.)

5.5

5.0

4.5

4.0
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Term (years)

15
 Impact of Greater Variability

What Term Premium?

7.0

6.5

6.0
Yield (% p.a.)

5.5 ?
5.0

4.5

4.0
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Term (years)

16
 Agenda

• Background
• Responding to Increased Financing Needs
• Impact of Greater Funding Task Variability
• Lessons

17
 Lessons

• Engage with investors

• Commit to a relevant market presence

18
 Agenda

• Background
• Responding to Increased Financing Needs
• Impact of Greater Funding Task Variability
• Lessons

19