2005-02: Debt Management in a Low Debt Environment

The Australian Government’s very low level of government debt sets the context for Australia’s debt management policy. Australia’s debt management policy seeks to achieve two objectives: supporting financial market efficiency; and achieving an appropriate balance of cost and risk for the Government. To achieve these two objectives the Government uses two instruments: physical bond issuance and financial derivatives (primarily interest rate swaps). Use of these two instruments allows the two targets to be independently managed. Financial market efficiency requires the issuance of sufficient Treasury bonds to support the Treasury bond futures market. Given…