corporation debt, of which bank bonds form a large part. bank bond spreads widened in line with global developments over the past year or so. nonetheless, yields remained relatively stable at a low level as benchmark rates edged down ( graph 2 ). over 2019, thus far, both spreads and benchmark rates have fallen. so there has been an appreciable decline in the cost of issuing unsecured debt in this form to very low levels by historical standards. https : / / www. rba. gov. au / speeches / 2019 / sp - ag - 2019 - 03 - 19. html 2 / 19 3 / 19 / 2019 bonds and benchmarks | speeches | rba graph 2 issuance of bank bonds was quite high in 2018 in net terms. in fact, net issuance was the highest for almost 10 years ( graph 3 ). that high level of net issuance reflected gross issuance around the average we have seen over the past few years at the same time that maturities in 2018 were at a low level. https : / / www. rba. gov. au / speeches / 2019 / sp - ag - 2019 - 03 - 19. html 3 / 19 3 / 19 / 2019 bonds and benchmarks | speeches | rba graph 3 in addition to strong net issuance, over the past year the banks have been issuing a larger share of their bonds domestically ( graph 4 ). the banks have not just issued less paper overseas. they have also issued a higher value of bonds in the domestic market. https : / / www. rba. gov. au / speeches / 2019 / sp - ag - 2019 - 03 - 19. html 4 / 19 3 / 19 / 2019 bonds and benchmarks | speeches | rba graph 4 often the perception of the domestic market is that it has limited capacity to absorb sizeable increases in issuance. however, it appears that the banks were able to issue the extra bonds domestically at a price that was at least as, if not a little more, favourable for the banks than the price of bonds issued offshore ( after accounting for hedging costs ; graph 5 ). https : / / www. rba. gov. au / speeches / 2019 / sp - ag - 2019 - 03 - 19. html 5 / 19 3 / 19 / 2019 bonds and benchmarks | speeches | rba graph 5 this raises the question of who was buying this domestically issued paper? comprehensive data ( from the financial accounts

not as liquid as for the 3 - month and 6 - month tenors. unlike for these longer tenors, banks have no incentive to issue 1 - month bills. this is because under the liquidity standards, they would be required https : / / www. rba. gov. au / speeches / 2019 / sp - ag - 2019 - 03 - 19. html 16 / 19 3 / 19 / 2019 bonds and benchmarks | speeches | rba to hold an equivalent amount of high - quality liquid assets. [ 12 ] the few transactions that do occur are mainly ones where investors are selling their bills back to the banks. while there are enough transactions to directly measure 3 - month and 6 - month bbsw on most days, this has only happened about half the time for 1 - month bbsw. [ 13 ] since the new calculation methodology was introduced, 1 - month bbsw has also been more volatile than 3 - month bbsw. this was particularly evident in mid january ( graph 16 ). so the lack of liquidity in the underlying market for 1 - month bills appears to be affecting the benchmark. graph 16 given these issues, users of 1 - month bbsw should be preparing to use alternative benchmarks. this is particularly relevant to the securitisation and derivatives markets, which frequently reference the 1 - month rate. consistent with this, the reserve bank is thinking about this issue given that it is relevant to a number of securities that we hold via our market operations. one option would be for issuers to instead reference 3 - month bbsw ; another option is to reference the cash rate. it will be important for market participants to evaluate the best options and make progress towards these in a timely manner. the cash rate is the alternative risk - free rate for the australian dollar the cash rate is best known as the reserve bank board's operational target for monetary policy. but it is also a significant benchmark in australian financial markets. the cash rate is administered by the https : / / www. rba. gov. au / speeches / 2019 / sp - ag - 2019 - 03 - 19. html 17 / 19 3 / 19 / 2019 bonds and benchmarks | speeches | rba rba and calculated directly from transactions in the interbank overnight cash market. with the transition from libor to risk - free rates internationally, we would expect there to be some corresponding migration away from bbsw towards the cash rate. this is particularly the case for financial products