Tag Archives: Commonwealth securities

Yields On Aussie Bonds Rising

8 Apr

And so it begins.

Have we just heard the ‘canary in the coalmine’ of government debt pause its happy singing?  When the government finds it has to start offering higher yields in order to sell its longer-dated sovereign bonds, you know that the market is beginning to smell inflation… and/or, losing faith in the government’s ability to pay up on maturity.

From The Australian:

The federal government drew solid demand today for an auction of new July 2022 bonds, its longest nominal debt on issue, but had to pay an attractive premium to sell the bonds.

In the latest extension of its yield curve, the Australian Office of Financial Management sold $1.0 billion of 5.75 per cent July 2022 bonds with a weighted average yield of 5.9642 per cent.

“The Commonwealth had to pay up to get good demand,” Westpac strategist Damien McColough said, noting good interest from buyers on yields closer to the 6.0 per cent level.

Over the past two months, the yield on the more common 10-year Australian Government bonds has risen from 5.48% to 5.85%.

We’re About To Discover That Sovereign Nations Can Go Bust Just Like Companies

30 Mar

From BusinessInsider:

Bill Gross (Ed: Head of PIMCO, the world’s largest bond trading firm) knocks the halo off of sovereign bonds in his latest March outlook.

He highlights how sovereign debt has been struck with more bad news than corporate debt lately.

While sovereign credit used to be generally considered more secure than that of private companies, suddenly the default of nations such as Greece, the U.K., or even Japan seems on the table, while that of many strong corporates remains remote.

What’s happening, according to Mr. Gross, is that government bonds are starting to look just like corporate bonds, rather than existing on some privileged less-risky peer as in the past. Because it’s anything goes and anyone can default in the new ‘unibond’ market.

Bill Gross commented that:

Government bailouts and guarantees such as those evidenced and envisioned in Dubai and Greece, as well as those for the last 18 months with banks and large industrial corporations across the globe, suggest a more homogeneous “unicredit” type of bond market. If core sovereigns such as the U.S., Germany, U.K., and Japan “absorb” more and more credit risk, then the credit spreads and yields of these sovereigns should look more and more like the markets that they guarantee. The Kings, in other words, in the process of increasingly shedding their clothes, begin to look more and more like their subjects. Kings and serfs begin to share the same castle.

Barnaby Joyce began raising questions about the possibility of ‘default’ by nations such as the USA last year. He was roundly ridiculed by all and sundry for doing so.

Unfortunately, no one raised the point that there is more than one way that a sovereign ‘default’ can occur. Historically, the most common form of ‘default’ is simply where the sovereign nation inflates away its debts. How? By destroying the value of its own currency:

Thus there are no longer any holy bond cows left in this world.

Heck, even U.S. bonds are subject to ‘stealth-default’ risk, which is simply the eating away of bond value over time via inflation and dollar depreciation.

Barnaby is right.

More Labor Bad Accounting

20 Mar

Media Release – Senator Barnaby Joyce, 20 March 2010:

The Labor Party has added another $2.1 billion to our debt in the last fortnight which cracks the $130 billion mark. This is slightly less than the Clem 7 tunnel in Brisbane and would build 10,000 kilometres of sealed roads in regional Australia. They know they will never be responsible for paying it back.

Every week we find out more and more of what they have purchased with our credit card. The Building Education Revolution (BER) appears to be a very choice piece of work. Yet another brilliant example of the Labor Party not dotting the ‘i’s and crossing the ‘t’s, as Mr Tanner pointed out with regard to his input into the Ceiling Insulation Program.

The Labor Party cannot control costs. It appears they have never had experience in running a business and have now decided to experiment with the Australian economy as an economic crash test dummy with silly and dangerous ideas.

The cost overruns, inside deals for unions, burning houses and electrocution fatalities are just the start of understanding how the Labor Party manages the economy.

Today, what inspired this media release is that I have just walked out of a K Mart, after a buying a cheap pair of working trousers, and a mother with two children and an older couple were lined up to tell me about money that has been squandered in their district. They were concerned what the effect of going public with their story would have on their local school teacher but the story has grabbed my attention.

$250 000 has just been spent on a school hall in a local village/town. They could identify $110 000 worth of costs but $140 000 was for them “mystery money”. The school raised a complaint with the contractor and has since been refunded in excess of $30 000.This seems to be the story nearly everywhere you go and now is more widely ventilated with what we are reading in the papers.

Mr Tanner, Mr Swan and Mr Rudd are responsible for this. Their whole management critique is farcical. The ceiling insulation program has literally turned into a national crisis; the BER is the Big Education Rip off; the hidden Henry Tax Review; the $43 billion NBN project that was begun without a cost benefit analysis. To top it all off, is the Labor Party’s continued insane desire to re-jig the whole Australian economy based on a colourless, odourless gas that will apparently lead to Australia, single handedly, cooling the planet. On and on it goes, this rolling Greek tragedy, which is Labor Party management.

As an accountant, I have seen this form of management that the Labor Party indulges in.  It reminds me of the new arrival in the family business who is flash as a rat with a gold tooth and is quickly swindling away years of hard work.

They have the whole household on hire purchase, with the new car, the new boat, the new pool, the new stereo, multiple overseas trips to many and varied destinations but they have no new income and the result is a massive debt. You get this sinking feeling that just like they blew in, they are going to blow up then blow out.

More information- Jenny Swan 0438 578402

Next week, the Rudd Government has scheduled to take us another$2.1bn into debt.

Eurozone Faces ‘Sovereign Debt Explosion’

15 Mar

From the UK’s Telegraph:

Europe’s governments are at increasing risk of an interest rate shock this year as the lingering effects of the Great Recession drive debt issuance to record levels and saturate bond markets, according to Standard & Poor’s.

The warning comes as bond giant PIMCO spoke of a “sovereign debt explosion” that has taken the world into uncharted waters and poses a major threat to economic stability. “Our sense is that the importance of the shock to public finances in advanced economies is not yet sufficiently appreciated and understood,” said Mohamed El-Erian, the group’s chief executive.

Mr El-Erian said most analysts are still using “backward-looking models” that fail to grasp the full magnitude of what has taken place in world affairs since the crisis. Some 40pc of the global economy is in countries where governments are running deficits above 10pc of GDP, with no easy way out.

Australia too, is issuing government debt at record levels – $1.6bn last week, another $2.1bn scheduled for this week.

See the Australian Office of Financial Management’s website.

Who Owns Our Debt?

14 Mar

Yesterday I wrote an article commenting on the SMH economics editor Ross Gittins’ column about Australia’s foreign debt.

Something else Mr Gittins claimed in his article caught my notice and bugged me overnight:

What’s that you say? You thought the pollies had done little else but spar about deficits and debt? Sorry, different debt. They’ve been arguing about the public debt – the amount the federal government owes (mainly to Australians).

Mr Gittins is apparently claiming that when the Australian Government issues Commonwealth Securities to raise money, that these are mainly bought by Australians – investors, super funds, banks, big companies, etc.

But is that true?  Is our public debt “mainly” owed to Australians?

I decided it might be nice to know for sure.  Not just take Ross Gittins’ word for it.

In the RBA’s Statistics section, spreadsheet “E9.xls” – Commonwealth Government Securities Classified By Holder as at June 30, I found something interesting…

Continue reading ‘Who Owns Our Debt?’

Labor’s Debt Legacy

12 Mar

Media Release – Senator Barnaby Joyce, 12 March 2010

Senator Barnaby Joyce says that reports in The Australian today confirm what the Coalition has been saying for months on debt and interest rates. Simply put, the Rudd Government’s excessive and profligate spending is putting upward pressure on interest rates.

It is clear that the RBA have resorted to the fastest increases in interest rates among advanced economies in response to the effects of this spending. So while other countries enjoy modest rises, hard working Australians will be paying the price for Labor’s bad management.

There is still a major portion of the $42 billion Nation Building and Jobs Plan to spend and while the Government has almost $128 billion of debt on issue (almost $16,000 per household), this is less than half its projected peak of $270 billion in 2014-15.

Gross debt has risen from $126.183 billion two weeks ago to $127.982 billion today. In two weeks the debt has risen by $1.8 billion. Easy to throw these figures about, but remember, just this increase is enough to seal 9000 kilometres of 6 metre wide road in country Queensland. This would take us from Sydney to Perth and back again and still have money left over.

It is highly unlikely there will be many left of the current Labor members by the time this debt is repaid. In fact quite a few will have passed away, but the debt will still be with us.

More Information- Jenny Swan 0746 251500

The Net Debt Picture

12 Mar

Here’s a picture that speaks volumes.

From the government’s 2009-10 Mid-Year Fiscal and Economic Outlook, Appendix D, Table D4, I’ve made the following chart tracking official ‘net debt’ since 1982 (click on chart to enlarge) –

Australian Government - Net Debt

I’ve marked the first full budget year for each successive government, from Labor’s Bob Hawke through to Labor’s Kevin Rudd.

See that steep fall in government net debt on the chart?  The one that took the nation from $96.2bn in net debt, down down down to negative $44.82bn in net debt?

Yes. That was a Coalition government.

See the rocket-like launch back UP to unprecedented levels of net debt?  Yes, that’s the Rudd Government’s panicked, totally unnecessary spending binge for you. The one they’ve been lying about.

With much more debt still to come.

After all, they borrowed another $1.6bn just this week. See the AOFM website, and click on the links under ‘Recent Tender Results”.

And next week, they’re planning to borrow another $2.1bn.

The massive, multi-billion dollar cockups in every single “stimulus” spending program, will only add to their… OUR… huge and unpayable debts.

Tanner Lies About Budget, GFC

11 Mar

Finance Minister Lindsay Tanner has demonstrated yet again that he is a liar and a fraud:

Lindsay Tanner today accused the Opposition of punching a $2 billion hole in the budget after it helped defeat a means test on the private health insurance rebate last night.

“Tony Abbott and the Liberal Party are blocking almost all the government’s major initiatives in the Senate these days,” Mr Tanner told ABC radio.

“We faced a huge budget problem as a result of the global financial crisis. We have to repair the damage to the budget and we have to get the budget back into surplus as quickly as possible.”

“Yet he’s punched a huge hole in our savings initiatives that are designed to get the budget back into surplus quickly.”

In a recent column for the Sydney Morning Herald, ironically and hypocritically titled “Dishonesty in the debt debate”, Lindsay Tanner wrote:

Why are we going into debt?  Because the global financial crisis punched a huge hole in our projected revenues, and forced us to act to support the economy and to sustain jobs.  Had we just sat back and watched, as our opponents seem to suggest, we would have seen unemployment rise dramatically.  That would have reduced tax revenues even further, and thus pushed us into deficit anyway… The Rudd government had no choice but to intervene to protect Australian working people from the ravages of the crisis.  The dishonest campaign about debt being prosecuted by our opponents should be seen for the fraud it is.

Tanner’s claim that the GFC “punched a huge hole” in the government’s projected revenues, is an outright lie. And I will prove it to you, from the government’s own Budget documents.

The real reason that Rudd Labor faces a “huge budget problem” is not a result of the global financial crisis. Instead, it is entirely a result of their panicked, monumentally incompetent response to the idea of a GFC.

The simple fact is this: Contrary to Tanner’s recent claim, and Labor’s shrill proclamations throughout 2009, the GFC barely affected Australian government revenues at all. The “huge budget problem” is entirely of the Rudd Government’s own making. Because their team of uneducated economic illiterates panicked, and went on a massive, unnecessary spending binge. And now they are lying to cover up that fact.

Want proof?

Take a look at the Government’s 2009-10 Budget, Statement 10, released in May 2009.  It shows that Government income (“Receipts”) was estimated to be down by just $7.8bn (2.7%) on the previous year –

Continue reading ‘Tanner Lies About Budget, GFC’

Rudd’s Interest Bill – $48.49bn to 2013

6 Mar

How much will Rudd’s spending spree cost Australian taxpayers… just in Interest-only?

$48.488 Billion to 2013. With more to come.

That’s enough to buy a No-business-plan-No-cost/benefit-analysis National Broadband Network.  With $5.5 Billion left over in loose change for, let’s say, a disastrous home insulation scheme plus the costs of fixing it afterwards.

Need proof?

I made the chart below using the data from the Government’s Mid-Year Economic and Fiscal Outlook (MYEFO) 2009-10 Budget statements. It shows the government’s projections of Interest on debt for this financial year, and the following three years. These are the Total Interest* (not principal) repayments that Kevin Rudd has incurred, and we-the-taxpayers must pay back –

Interest on debt - Total $48.488 Billion

Interest Expense - MYEFO 2009-10, Appendix B, Note 10

Note:  This is only the “Estimates” (2009-10, 2010-11) and “Projections” (2011-12, 2012-13) for Interest-on-debt, as at November 2009 when the MYEFO was published. With the Rudd Government still borrowing well over $1 billion a week, who knows just how big the Interest-only bill is now.

One thing we do know.  We cannot pay it back.

* Total Interest includes $5.49 Billion in ‘Other financing costs’ – What exactly is that, and who gets it?

$127.68 Billion and Rising

6 Mar

From the Australian Office of Financial Management:

Total Commonwealth Government Securities on Issue – $127,682m

*As at 5 March 2010
Updated weekly
Face value amounts rounded to the nearest million

How much further into debt will Rudd Labor take us next week?

Forthcoming AOFM Tenders

Treasury Bonds
On Wednesday, 10 March 2010 a tender for the issue of $700 million of the June 2014 Bond line is planned to be held.

Treasury Notes
A tender for the issue of $600 million of Treasury Notes maturing on 11 June 2010 and $300 million of Treasury Notes maturing on 23 July 2010 is planned to be held on Thursday, 11 March 2010.

That’s right. Another $1.6 Billion in debt, next week alone.

These are the debt numbers that Finance Minister Lindsay Tanner does not trouble himself to know.

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