Portfolio Duration and Term to Maturity swaps As at 30 June 2012, the weighted average and forward start interest rate swaps to duration of the Northern Territory debt on manage issue was an increase from the 3.0 years interest rate risk as required. reported in 2011. Similarly, weighted In March 2012, the Treasurer approved a average term to maturity was slightly revised target band of interest rate higher at 4.2 years compared to 3.6 years recorded in 2011. exposure to maturing debt in any financial year to a lower limit of Interest Rate Risk Management $400 million and an limit of $800 The Corporation’s interest rate risk arises from cash flow mismatches in million. the maturity profiles and repricing of its financial assets and This strategy continues to support the liabilities. The Corporation manages its Corporation’s ability to respond to exposure to interest rate risk so as to avoid strong demand from institutional creating abnormally high refinancing investors and create slightly larger and requirements during periods of high more liquid bonds series. The target will interest rates, or unusually low refinancing support the increase in the Territory’s requirements in periods of low interest borrowing requirement anticipated for the rates next two to three years to fund the capital and operating expenditure requirements (see Figure 2). of Government agencies, government business divisions (GBDs) and government The Corporation may use interest rate corporations (GOCs). Figure 2: Interest Rate Exposure of Maturing Debt as at 30 June 2012 Figure 3: Trading Margin
Portfolio Duration and Term to Maturity As at 30 June 2012, the weighted average duration of the Northern Territory debt on issue was an increase from the 3.0 years reported in 2011. Similarly, weighted average term to maturity was slightly higher at 4.2 years compared to 3.6 years recorded in 2011. Interest Rate Risk Management The Corporation’s interest rate risk arises from cash flow mismatches in the maturity profiles and repricing of its financial assets and liabilities. The Corporation manages its exposure to interest rate risk so as to avoid creating abnormally high refinancing requirements during periods of high interest rates, or unusually low refinancing requirements in periods of low interest rates (see Figure 2). The Corporation may use interest rate swaps and forward start interest rate swaps to manage interest rate risk as required. In March 2012, the Treasurer approved a revised target band of interest rate exposure to maturing debt in any financial year to a lower limit of $400 million and an limit of $800 million. This strategy continues to support the Corporation’s ability to respond to strong demand from institutional investors and create slightly larger and more liquid bonds series. The target will support the increase in the Territory’s borrowing requirement anticipated for the next two to three years to fund the capital and operating expenditure requirements of Government agencies, government business divisions (GBDs) and government corporations (GOCs). Figure 2: Interest Rate Exposure of Maturing Debt as at 30 June 2012 Figure 3: Trading Margin