Bonds are low-risk secure debt securities issued by governments and large corporations.
They provide a stable source of income, help diversify your investment portfolio and protect your hard-earned money from the volatile market.
It is what makes them quite an attractive investment option among investors. If you want to buy and invest in bonds in Australia, you have come to the right place.
This blog discusses the different types of bonds and ways to invest in them. It also answers some of the most commonly asked questions about buying bonds in Australia.
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1. What Are Bonds?
Bonds are safe investments used by governments and companies to finance projects and operations.
Investing in bonds is lending money to a government or a company to receive regular interest payments after an agreed time. These are called coupon payments.
When you buy a bond, it includes details such as the total loan amount you must repay to the bond owner and how much interest will be payable to the bond owner on an incremental basis.
Such regular interest payments provide a continuous stream of income that you can use to create a diversified portfolio.
The return on your investment may be lower than you expect from investing in stocks, but they offer more stability. That's why bonds are an attractive investment option and a strategic asset for your portfolio, particularly in times of falling interest rates or market volatility.
2. How Do Bonds Work?
Investors lend money to a company or a government for a fixed period at a pre-determined interest rate. All bonds come with a fixed value, called "face value" when issued to the lender.
Government bonds in Australia generally make regular interest payments to the bond owners during the bond term and repay their principal amount on the 'maturity date' of the bonds.
Investors can sell their bonds before the maturity date, but in that case, they will get the market value, which could be lower than the face value or principal of the bond.
For example, if you purchase a 10-year $10,000 bond that pays 3% interest from a mining company, the company will make periodic interest payments on the $10,000 and return the entire principal in 10 years.
The price of a bond may fluctuate due to four main factors:
The interest rate
And the credit rating of the issuing company (if the credit rating improves, then the bond price will rise, and vice versa)
The level of liquidity
When the bond is due to be repaid
Skilled bond traders try to gain from price movements by actively trading bonds on the bond markets.
3. What Are The 5 Types Of Bonds?
The Australian government and corporations are the main issuing entities in Australia for bonds.
The Commonwealth of Australia issues Commonwealth Government Bonds, or Commonwealth Government Securities, which pay a lower interest rate than corporate bonds in Australia as they involve fewer risks.
Here is a collection of the different bonds you can buy in Australia:
Government-Issued Commonwealth Government Securities
You can buy these in various ways:
Through the ASX
Directly over the counter
Through a broker
With an online trading account
The face value and the interest rate of this type of bond remain fixed, and payments are made every 3 to 6 months over the bond term.
There are different types of Australian Government Bonds:
Corporate Bonds
Companies issue these bonds to raise money from investors to finance their business activities. You can trade them on the over-the-counter (OTC) market.
Although they offer higher interest rates, growing companies are riskier than government entities. It is necessary to check the credit risk of corporate bonds before buying them. The minimum amount of funds you need to buy corporate bonds is higher and can be around $500,000.
Sustainable Bonds
You can also find many bonds through superannuation, wholesale markets, and exchange-traded funds. They work the same way as common bonds but are primarily used to fund sustainable projects.
Bond ETFs
They are available on the ASX and are accessible with an online share trading account. Investing in a bond ETF implies investing in a fund that tracks the bond market (corporate or government bonds) and imitates its returns.
Bond ETFs pay interest monthly, and you receive the capital gains as a yearly dividend.
4. How Do I Buy ASX Bonds?
There are several easy and affordable ways to access the bond market in Australia. You can buy bonds listed on ASX in the following ways:
5. Steps For BeginnersTo Invest In Bonds In Australia
Step 1: Study The Bonds Before Investing
You must have an investment strategy and know the terms used during its execution. Some of these terms include:
Accrued interest
Basis points
Bid/ask
Clean price
Coupon rate
Duration
Market price
Nominal value
Par
Premium and discount bonds
Yield to maturity
Beginners can take an Australian Government bonds course that introduces them to exchange-traded Australian Government bonds and teach about how bonds work and their importance in their portfolio.
Step 2: Identify The Right Bond For Investment
Next, you must decide what type of bond you want to invest in.
Investors can invest in Bond Funds or Bond ETFs. It is the relatively easiest and cheapest way to access the bond market. You can buy and sell bonds on a stock exchange via a full-service broker or an online trading platform.
If you don't have an online trading account to buy bonds yet, we recommend the best broker for Australia and worldwide, eToro - You can create an eToro trading account HERE.
Buy Australian & international shares with unlimited commission-free trades. (No brokerage)
Provider Name | Fee For $15K Trade | Ongoing Fees | Trade with Live Prices |
eToro (Best) |
- |
Yes |
Yes |
CMC Invest |
$15 |
Yes |
Yes |
IG |
$7.5 |
Yes |
Yes |
Through Your Superannuation
Provider Name | 1-Year Return | 5-Year Return |
Australian Retirement Trust Super Savings |
0.3% (Balanced Pool) |
7.4% (Balanced Pool) |
Aware-Super Personal |
-1.8% (High Growth) |
8.4% (High Growth) |
Virgin Money Super |
-3.7% |
7.5% |
Invest In Bonds via CFDs
CFD investors seek to gain from upward or downward bond price movements in the futures market. However, these complex derivative products can be risky and are most suited to advanced traders.
6. Compare Online Brokers To Invest In Bonds
With so many brokers available online, it often becomes confusing to find the best one from them.
We have compared top Online Brokers in Australia based on vital parameters to ease your selection.
Broker Name | Brokerage on ETFs | Inactivity Fee | Markets Served |
eToro (Our Recommendation) | N/A | US$10 per month if there has been no log-in for 12 months | Global shares, US shares, ETFs |
IG Share Trading | $8 | No | ASX shares, US shares, UK shares, ETFs, and more |
CMC Markets Invest | $0 | No | ASX shares, Global shares, mFunds, ETFs |
Tiger Brokers | $6.49 | No | ASX shares, Global shares, Options trading, US shares, ETFs |
Monex Share Trading | $19.95 | No | ASX shares, Global shares, US shares, ETFs |
Selfwealth (Basic account) | $9.50 | No | ASX shares, US shares |
Moomoo Share Trading | $8.80 | No | ASX shares, US shares, ETFs |
Syfe |
Pay $0 brokerage on the first 2 trades per month and then US$1.49 per trade after. | $0 | US shares |
Bell Direct Share Trading | $15 | No | ASX shares, mFunds, ETFs |
Superhero share trading | $0 | No | ASX shares, US shares, ETFs |
Saxo Capital Markets (Classic account) | $5 | No | ASX shares, Global shares, ETFs |
7. Frequently Asked Questions (FAQs)
Which Type of Bond Is The Best?
In Australia, there are three main types of Fixed Income Securities you can trade on the ASX:
Australian Government Bonds
Corporate Bonds
Hybrid Securities
As each type of bond has its sellers, buyers, objectives, and levels of risk and returns potential, it is necessary to compare options carefully before making a decision.
How Do I Trade In Bonds?
It is easy to invest in exchange-traded Australian government bonds on the ASX. You can do it through a financial adviser, a stockbroker, or an online share trading account.
The ASX provides a complete list of all government bonds - Treasury bonds and Treasury-indexed bonds that are available for trading on the ASX.
Some bonds are not publicly traded, and you can only buy them over the counter. You can purchase them wholesale. You will have to engage a broker to execute your trades on your behalf (in exchange for a brokerage fee).
It often requires a more considerable minimum investment (over $500,000).
Can Bonds Lose Value?
Since the interest rate payable on the bond can not go below zero, so the redemption value of your bond can not reduce.
Is There A Downside To Bonds?
Bonds are a defensive asset but also carries risk such as:
What Is The Interest Paid on Bonds?
Type of Bond | Interest Rate |
Fixed Rate Bond |
Is set at the time of issuance of the bond, and stays the same till maturity |
Floating Rate Bond |
Can fluctuate over the term of the bond. The coupon rate = cash rate + set percentage/margin |
Indexed Bond |
Returns get indexed against the Consumer Price Index which safeguards it against increasing inflation |
What Is The Australian Government Bonds Calculator?
The ASX bond calculator computes bond prices and yields for standard fixed-interest and exchange-traded Australian Government Bonds. It helps users calculate the yield to maturity of different AGBs from the traded price, thereby assisting people in determining which AGB is the most attractive investment for their needs.
Once you enter the yield or market price for your selected AGB into the calculator, the calculator will produce the following:
The market price depends on the yield to maturity
Yield to maturity depending on the market price
Clean price. (market price - accrued interest)
Accumulated interest
What Are The Best Bonds To Invest In Australia?
SPDR S&P/ASX Australian Bond Fund
The State Street Global Advisors Australia Limited manages this bond and provides returns corresponding to the S&P/ASX Australian Fixed Interest Index.
The fund comprises the following sectors in its exposure profile:
Semi-government bonds (27.37%)
Commonwealth government bonds (54.14%)
Supranational bonds (5.37%)
Corporate-finance bonds (4.96%)
Government-related bonds (4.78%)
Corporate industry bonds (2.23%)
Other (0.78%)
Corporate utility bonds (0.38%)
The iShares Core Composite Bond ETF
The bond ETF tracks the performance of the Bloomberg AusBond Composite Index, which is the underlying fund index.
The ETF mainly holds investment-grade fixed-income securities issued by the government and domiciled corporations in Australia. The average maturity of its underlying investments is between 7 and 10 years, and its total annual return was 2.57%.
You can also refer to the below top Australian government bonds list to find the best bond for your requirements:
AMP Capital Corporate Bond
AMP Flex Lifetime S2-AMP Australian Bond
Altius Sustainable Bond Fund
Artesian Corporate Bond Fund
Pendal Government Bond
CFS Wholesale Australian Bond
Jamieson Coote Bonds Active
Legg Mason Western Asset Australian Bond Trust
Mercer Australian Sovereign Bond Fund
Nikko AM Australian Bond
PIMCO Australian Bond (Wholesale)
UBS Australian Bond Fund
Vanguard Australian Govt Bond Index
Click here to find the complete list of Exchange-traded Treasury Bonds on ASX.
What Is The Best Time To Buy Bonds?
Usually, investors like to invest in bonds when an economy performs well, and inflationary pressures and interest rates tend to build up. It puts pressure on yields, causes them to increase, and the bond value tends to fall.
Likewise, they tend to sell their bond units when the economy cools, and interest rates fall, leading to a bond price increase.
However, some investors invest in bonds when an economy doesn’t perform well. Such investors start shifting their investment from the stock market to bonds to protect their capital. They prefer lower but guaranteed returns to take risky bets in the stock market.
Experts recommend understanding the economic cycle beside the factors that drive the yields up or down to decide the correct entry and exit time in bonds, debt funds, or hybrid funds.
Can You Invest In Bonds In Australia?
Yes, there are multiple mediums you can use to buy a bond in Australia. These include:
Buying directly over the counter
Through the ASX
Through a broker
Using an online trading account
Do Bonds Pay Monthly?
Most bond funds, like bond ETFs, pay regular monthly payments, but the amount may differ based on the market conditions.
How Much Money Do I Need To Invest In Bonds?
Unlike stocks, you need an initial amount of money to start investing in bonds.
So, how much do you need to start investing? Many bonds come with a face value of $1000, so buying one bond unit on the Australian Stock Exchange is equivalent to $100.
On the other hand, the minimum amount needed to purchase corporate bonds is usually large, up to $500,000.
How Much Do Australian Government Bonds Pay?
Government Bonds In Australia Rate (as of 23-09-2022)
Name |
Coupon |
Price |
Yield |
1 Day |
1 Month |
1 Year |
GTAUD2Y: GOV Australian government bonds rate 2-Year Yield |
2.75 |
99.04 |
3.35% |
+25 |
+33 |
+336 |
GTAUD5Y: GOV Australia Bond 5-year Australian government bond rate |
4.75 |
104.40 |
3.68% |
+26 |
+29 |
+296 |
GTAUD10Y: GOV Australia Bond 10-Year Yield |
1.25 |
78.79 |
3.90% |
+24 |
+24 |
+251 |
GTAUD15Y: GOV Australia Bond 15-Year Yield |
3.75 |
96.40 |
4.06% |
+23 |
+20 |
+226 |
10-Year Australian Government Bond Rate RBA
Rate | Current | 1-Year Before |
RBATCTR: IND RBA Cash Rate Target |
2.35 |
0.10 |
Is Buying Bonds A Good Idea?
Bonds come in a variety of types. Out of all, Government bonds are one of the safest investment options, as no Australian government has defaulted on its debt.
Investing in these defensive assets gives you a wide range of benefits, such as:
Less volatility makes it potentially a safer investment
Provides a stable and predictable revenue stream
Choosing bonds to diversify a part of your portfolio can help reduce your financial risk.
Buying bonds is an excellent option for risk-averse people who aren’t after huge returns and want a comparatively safer and stable investment option. Bonds can help you gain decent returns without much exposure to unwanted market volatility.
It is ideal for retired people or those entering retirement or already retired who prefer a more stable income stream to support their lifestyle. Additionally, those heavily invested in stocks can consider buying bonds to rebalance their portfolio to average their financial risks/returns.
How Do You Trade Bonds To Make Money?
Here are the two simple ways you can use to make money from bonds:
Hold onto the bonds till their maturity and collect the coupon payments. This way, you will receive your initial investment and the profit as “interest” you gained monthly/quarterly/annually during the bond tenure.
Buy them at a low price, and sell them at a price higher than what you initially paid.
How to Buy Government Bonds In Australia on Commsec?
CommSec allows trade in Interest Rate Securities the same way as stocks listed on the ASX. A CommSec client can trade all the Interest Rate Securities available on the ASX.
The platform allows to:
Access the current bond price on the website using the ASX code.
View charts and other relevant data.
Place an order to buy/sell a government bond.
CommSec, in partnership with CommBank Investor Sales, enables Sophisticated and Wholesale clients to trade in unlisted or over-the-counter bond investments with an investment of at least $500,000.
To start investing in Interest Rate Securities, open a CommSec Share Trading Account. Login to your CommSec Share Trading Account and search for Interest Rate Securities.
8. Conclusion
We hope the above information has enhanced your knowledge of bonds and how to invest in them.
Like any other investment instrument, conduct thorough research and compare all available options to make an informed buying decision.
If you don't have an online account to buy bonds yet, we recommend the best broker for Australia and worldwide, eToro - You can create an eToro trading account HERE.
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