What are Government Bonds?

Government bonds are highly secure investment products, where you lend money to the government (fixed face value) at a fixed interest rate (same annual rate of interest over the life of the security) and fixed term. The Government pays interest and returns your principal at maturity (end of term).

In Australia bonds can be purchased from either Federal or State governments. The Federal Government issues bonds called Commonwealth Government Securities and are listed on the ASX as ‘Exchange-traded Treasury Bonds’ and ‘Exchange-traded Treasury Indexed Bonds’.

Exchange-traded Treasury Indexed Bonds differ to typical Government bonds, as they  have a face value that is adjusted for movements in the Consumer Price Index (CPI).

Advantages

  • 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

Disadvantages

  • Selling bonds – If you want to sell the bonds before maturity, they are subject to market value
  • Inflation – Exchange-traded Treasury Bonds are affected by CPI