see functionality return to these other parts of the market over time. indeed, that has turned out to be the case. the rba's purchases in the second half of march and into april helped to improve the functionality in the broader bond market and achieved the board's target for the three - year bond yield of around 25 basis points ( graph 7 ). the improved functionality of the market has occurred alongside very sizeable issuance by the aofm, which has been met with very strong demand. rba4 - local. rba. gov. au / speeches / 2020 / sp - dg - 2020 - 06 - 30. html 9 / 18 30 / 06 / 2020 the reserve bank's policy actions and balance sheet | speeches | rba graph 7 the three - year bond yield has been consistent with the board's target and the government bond market has been functioning effectively for a number of weeks now. if the three - year bond yield target is credible to the market, then the reserve bank does not need to purchase many bonds at all to achieve the target. indeed, that has been the case over the past month or so and the rba has not needed to buy any bonds since early may. nevertheless, the rba stands ready to scale up its purchases if necessary to achieve these objectives. the reserve bank has also purchased state government bonds ( semis ) to improve the functioning in that market. the state governments also require a functioning bond market to be able to finance their fiscal stimulus. again these purchases were conducted in the secondary market. to date, these purchases have totalled $ 11 billion and the amount of bonds bought from each state has been broadly proportional to their size. conditions in the semis market have also returned to their precovid state and the state borrowing authorities have also been able to issue sizeable amounts of bonds in a short period of time. with the cash rate around 13 – 14 basis points and the target for the three - year australian government bond yield around 25 basis points, one would expect yields on bonds with maturities between the overnight cash rate and three years to be no more than around 25 basis points. however, those bonds with maturities shorter than the three - year futures basket are off - the - run and tend to be less in demand. they can trade at a higher yield than bonds included in the futures basket, reflecting their lower liquidity. we would not expect the illiquidity premium to be very high. if

. one can think of this as equivalent to the repo transactions in the rba's daily market operations, but for a considerably longer term than normal. under this facility banks can borrow an amount up to 3 per cent of their loan book until the end of september. they are able to draw on additional amounts if they increase their lending to businesses, particularly small and medium - sized businesses. the cost of funding available to the banking system under the tff at 25 basis points is significantly lower than the cost of three - year funding in the market, which is currently around 75 basis points for the major banks, and even lower relative to the cost of funding in the market for the regional and smaller banks. hence the tff is contributing to a lower cost of funding for the banking system and thereby to lower household and business borrowing costs. in aggregate, the initial tff allocation is sufficient to replace all of adis'maturing bond funding over the next six months. we have seen the announcement of the tff contribute to lower borrowing costs even though the total drawings by banks under the tff have been modest to date relative to the size of the available funding. [ 18 ] so far, over 60 institutions have drawn on the tff, with smaller institutions drawing a higher share of the funding available to them. we expect increased drawings in the coming months as banks use the tff funds to replace maturing wholesale funding. the strong growth in deposits has reduced the immediate need for tff funding ( graph 9 ). some of that deposit growth was likely temporary as businesses drew on precautionary lines of credit and rba4 - local. rba. gov. au / speeches / 2020 / sp - dg - 2020 - 06 - 30. html 13 / 18 30 / 06 / 2020 the reserve bank's policy actions and balance sheet | speeches | rba placed the funds drawn on deposit at a bank. and we have seen some of this reverse since april. but some of the increase in deposits is likely to be more long - lasting. graph 9 hence as a result of the rba's recent policy actions, there has been a substantial increase in system liquidity in the form of es balances held by the banking system, which is evident on the rba's balance sheet. this increase in system liquidity is coming through a number of channels : the rba's daily market operations ; drawings under the tff ; and the rba's