AOFM Needs to Refine Bid Format at T-Note Tenders as Competition Intensifies

By Sophia Rodrigues

A case is building for refining bidding format at Australian Treasury Note tenders to bring it in line with international practice as stronger demand for Notes has led to more competitive bidding in recent weeks.

The current rules allow for a bid for a T-Note to be expressed to a maximum of two decimal places, but it may now be time to consider a revision to allow three or four decimals.

This would not only reflect increased competition at T-Note auctions but also is appropriate in a world where short term interest rates are trading close to zero.


The Australian Office of Finance Management stepped up issuances of T-Notes in recent months in response to increased government stimulus to support the economy amid COVID-19.

From A$15 billion earlier this year, the outstanding on T-Notes has increased to around A$60 billion currently. According to AOFM, this could increase further to as high as A$90 billion.

The demand for T-Notes has increased in line with higher supply with interest particularly from bank balance sheets, central banks and domestic fund managers.


The stronger demand has also led to more aggressive bidding at the weekly tenders. In late May, the spread between the highest and lowest successful bid was 3bps at each of the three tenders on May 28.

This narrowed further to 2bps at two recent auctions, and on Thursday the spread was 2bps for two tenders and 1bp for the third. It was the first time ever that a tender size of minimum A$1.0 billion and term over three months was cleared with difference between the minimum and maximum issue yield of just 1bp.

But as investor bids get competitive, there is now a need to widen the bidding format to allow at least three decimal places, instead of the current maximum of two.

So, for example, at the November 27, 2020 tender on Thursday, the weighted average issue yield was 0.2049%. The lowest accepted yield was 0.20% and the highest was 0.21%.

If three or four decimal places were allowed, a still-stronger competition could result in bid being placed at 0.200%, 0.201%, 0.202% but this is currently not allowed.


Interestingly among countries like the US, UK, Canada, Japan, India and New Zealand, Australia is the only one which has two decimal places for Note tenders.

The US, Canada and New Zealand allows three decimals for yield, Japan allows four and the UK allows up to six decimals. India has a price-based auction where it allows bids up to four decimal places.

More interestingly, Australia allows up to four decimal places at Treasury Bond tenders. So, on this basis alone there is already a strong argument to extend this to T-Notes.