Australian Government bonds

Low risk investments

Australian Government bonds are highly secure investment products. Their returns set a benchmark for the market. With these types of bonds you lend money to the government at an agreed interest rate for a certain amount of time. The Government will pay the interest and return your principal at maturity.

These products are now available on the ASX.

What are government bonds?

The Commonwealth of Australia issues bonds called Commonwealth Government Securities. A form of these bonds is available for trading on the Australian Securities Exchange (ASX). These investments provide investors with a predictable cash flow paid on a periodic basis, with a specified maturity date.

Commonwealth Government Securities are listed on the ASX as 'Exchange-traded Treasury Bonds' and 'Exchange-traded Treasury Indexed Bonds'.

Exchange-traded Treasury Bonds are debt securities with a fixed face value (the amount you will get back at maturity). They carry the same annual rate of interest over the life of the security, payable every 6 months.

Exchange-traded Treasury Indexed Bonds have a face value that is adjusted for movements in the Consumer Price Index (CPI). Interest is paid quarterly at a fixed rate, on the adjusted face value. This means the amount of interest you receive will vary from one quarter to the next.

Exchange-traded Treasury Bonds and Exchange-traded Treasury Indexed Bonds are also known as:

  • Commonwealth Government Security (CGS) depository interest
  • Australian Government bonds
  • Exchange-traded Australian Government bonds

To learn more about Australian Government bonds:

Buying and selling government bonds

You can buy and sell Exchange-traded Treasury Bonds and Exchange-traded Treasury Indexed Bonds on the ASX like shares.

This can be done through your financial adviser, stockbroker or via an online trading account.

For more information, see how to buy and sell shares.

The benefits

Exchange-traded Treasury Bonds and Exchange-traded Treasury Indexed Bonds have the following benefits:

  • Low risk - You will always receive the face value of the bond if you hold it until maturity
  • Regular income - You'll get quarterly or half-yearly interest payments
  • Easy to buy and sell - You can buy and sell them anytime the ASX market is open

Exchange-traded Treasury Indexed Bonds are not affected by inflation.

Exchange-traded Treasury Bonds earn interest at a fixed rate for the life of the investment.

The risks

If you want to sell Australian Government bonds before they reach maturity, they are subject to market value. Market value means the price people are prepared to pay. The market price will vary over time depending on what's happening in the economy and with interest rates.

Exchange-traded Treasury Bonds are also affected by inflation (although Exchange-traded Treasury Indexed Bonds are not).

You should consider getting financial advice and read the information statements to find out if these products are suitable for you.

Buying Australian Government bonds is a low risk way for retail investors to familiarise themselves with bonds. These investments provide a steady income stream as well as diversification within an investment portfolio.

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Last updated: 18 Dec 2015