Australian Government Bonds
This website is designed to help retail investors find information they need about investing in the Australian Commonwealth government's AAA rated bonds, by:
What is a bond?
A bond is basically a tradeable debt instrument , where the issuer of the bond (a government or a company) owes the bond holder a debt. Depending on the terms of the bond, the issuer is obliged to pay regular interest (called the "coupon") and to repay the face value (or "principal") at the repayment date (called "maturity").
Government bonds are a little different from corporate bonds. Corporate bonds can have more complex features, such as being either secured over assets or subordinated to other creditors, a floating interest rate instead of a fixed coupon, and the issuer may have an ability to repay its bonds early or to extend the maturity date. The credit risk of a corporate bond can be harder to determine, especially if the issuer does not have a credit rating. A corporate bond will usually pay higher interest than a government bond due to the increased complexity and risk.
Corporate bonds can be listed in ASX (which makes buying and selling easier), and now Australian Commonwealth Government bonds are traded on ASX. Other government bonds, such as State government bonds, are not yet tradeable on ASX.
Why invest in bonds?
A bond entitles an investor to a certain, regular income stream. A fixed income entitlement is not usually found with dividends from a company's shares. The market values of bonds are also more stable than the values of share, and on maturity of the bond the bondholder is entitled to be repaid the face value of the bond in full. Shareholders in a company do not have a right to be paid a fixed capital return on their ordinary shares. For these reasons, bonds are generally considered less risky than shares.
Bonds can also provide diversification in a portfolio. When stockmarkets (and the values of shares in a portfolio) are going down in bad economic conditions, the market value of fixed interest bond can rise if official interest rates are reduced in order to stimulate the economy. Inflation linked bonds can also help protect the real capital and income value of an investment against rising inflation. Holding diversified investments, including bonds, can therefore help preserve the overall capital value of a portfolio over the long term.