This is materially higher than the $128 billion issued last year, although almost $90 billion of that was issued in the last quarter.
“With the impact of the pandemic still unfolding and there being no assured means of anticipating what lies ahead, forecasts will continue to change,” Mr Nicholl told the Australian Business Economists briefing on Thursday.
“That said, we are planning to transition back to the standard way of updating the market and aim to start from the next update immediately following the budget.
“This issuance rate together with a number of syndications will allow us to ‘front-load’ the program. Given the potential for heightened uncertainty in the outlook, staying clearly ahead of the issuance task this year will be wise,” he said.
Mr Nicholl, fresh from closing the books on a $15 billion 30-year bond issue that attracted more than twice that figure in investor demand, said the AOFM would look to the long end of the yield curve for further debt issuance.
“We will need to rely heavily on mid-curve and 10-year bond issuance to achieve our funding task,” he said.
“We continue to see opportunity for developing this part of the market and will continue to hold appropriately sized tenders and smaller syndications to tap existing lines when the opportunity arises – although our previous guidance on tap syndications at around $2 billion is now revised as a range of up to $6 billion.
“An overlapping consideration is the coming launch of a new five-year Treasury bond futures contract, which in our view will provide additional structural support for the AGS market. It will create new trading opportunities and hopefully increase investor interest in that part of the yield curve.
“It seems sensible to assume the initiative will enhance liquidity in this region of the curve.”
Strong sovereign credit rating
Mr Nicholl also said while there had been strong demand from investors for debt, there were several areas that influenced future attractiveness.
“Our view is that a strong sovereign credit rating, attractive yields, transparency in the market, including consistent clear messaging from the RBA, active support from intermediaries, and up-to-date issuance guidance combine to promote investor confidence,” he said.
In the latest 30-year bond issue, there was growing investor demand from Asia outside of Japan. The 13 per cent allocation of that bond to Asia was double that of the March 2047 bond.
So far the federal government has forecast an underlying cash deficit of $85.8 billion, or 4.3 per cent of gross domestic product, in 2019-20, increasing to $184.5 billion or 9.7 per cent of GDP in 2020-21.
Net debt levels are expected to reach $667 billion or 35.7 per cent of GDP at the end of June next year. Gross debt will reach $851.9 billion or 45 per cent of GDP.
“These are daunting figures and reveal the impact on the budget of COVID-19,” Treasurer Josh Frydenberg said last week.