# Bonds: what's up with those interest rates?



## jdenhaan (11 November 2013)

Hi all,

I'm looking at ASX listed Ausatralian Government Bonds (list here) and I noticed something weird. 

What's up with the wildly varying interest rates? For example, the GSBG23 has an interest rate of 5.5%, whereas the GSBG24 has only 2.75%. Why would someone buy the GSBG24? Is it a safer bond? Or is it simply cheaper and do you make your money at maturity / selling time?


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## Hodgie (11 November 2013)

jdenhaan said:


> Hi all,
> 
> I'm looking at ASX listed Ausatralian Government Bonds (list here) and I noticed something weird.
> 
> What's up with the wildly varying interest rates? For example, the GSBG23 has an interest rate of 5.5%, whereas the GSBG24 has only 2.75%. Why would someone buy the GSBG24? Is it a safer bond? Or is it simply cheaper and do you make your money at maturity / selling time?




The bond with the lower coupon rate has a lower market value. It would be valued at a rate where the coupon plus maturity value is equal across the bonds. As market interest rates rise the value of bonds issues at lower coupon rates become less valuable because they now offer below market coupon returns. Falling interest rates have the opposite effect.


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## notting (12 November 2013)

30 year bond bull market is coming to an end.
If it's Yellen you should be sellen they have been sayen.


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## McLovin (12 November 2013)

Hodgie said:


> The bond with the lower coupon rate has a lower market value. It would be valued at a rate where the coupon plus maturity value is equal across the bonds. As market interest rates rise the value of bonds issues at lower coupon rates become less valuable because they now offer below market coupon returns. Falling interest rates have the opposite effect.




Also important to remember that coupon rate will affect price volatility. So a lower coupon bond will have higher price volatility than a higher coupon bond, even though they may have the same YTM.


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## Hodgie (18 November 2013)

McLovin said:


> Also important to remember that coupon rate will affect price volatility. So a lower coupon bond will have higher price volatility than a higher coupon bond, even though they may have the same YTM.




Yep, good point.


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## mistersmith14 (21 January 2014)

Racking my brain for this.


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## wayneL (17 December 2015)

THE END OF CHEAP MONEY or something, was the b breathless headline I saw this morning.

Geez! So 0.25% is expensive eh?


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## cynic (17 December 2015)

wayneL said:


> THE END OF CHEAP MONEY or something, was the b breathless headline I saw this morning.
> 
> Geez! So 0.25% is expensive eh?




It's an infinite percentage increase on 0% !!


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