Analysis: Australia’s Record Cash to Neutralize Huge Deficit Announcement Impact

By Sophia Rodrigues

As Treasurer Josh Frydenberg prepares to deliver one of the most important budgets and the widest fiscal deficits in Australian history, he can be a bit relaxed on one count -- a sharp sell-off in bonds that typically accompanies announcement of a big fiscal deficit may not happen.

This is because the government has front-loaded the borrowing program and is now sitting on a record pile of cash ahead of the budget. This provides ample flexibility to adjust borrowing plan for the rest of the year, should market conditions deteriorate.

As of September 29, the government’s cash balance was around A$106 billion, a record high, and likely the first time it has crossed the A$100 billion mark.

The latest spike in cash balance is due to the settlement of the September 2026 bond syndication where the Australian Office of Financial Management sold a record A$25 billion.

Economists expect the government to project fiscal deficit as high as A$200 billion for 2020-21 but the borrowing program will depend on the cash deficit, bond repayments and other cash spending, including on infrastructure.


The plan for Treasury Bond issuance at the start of the year was A$240 billion but in only three months A$114.5 billion or 48% has been issued.

This means the AOFM has nine months to do the remaining A$126 billion or higher borrowing if there is a big deviation from the A$240 billion plan.

Given the strong demand for Australian bonds at tenders, and stronger demand at syndications, the risk that additional supply would pressure yields higher is negligible. And if external events force yields higher or reduces demand, the AOFM has the capacity to slow down.

One indicator of strong demand was at the September 30 tender for the December 2030 bonds where a single bidder took up the entire A$2.0 billion of bonds on offer.

Another one was the recent syndication of the September 2026 bond where the AOFM sold a record A$25 billion after receiving bids totalling A$66.1 billion at the clearing price.