Govt. Bonds listing on the ASX today

[clowboy]

Ok, it's night time here and tired from 12 hours of doing tax returns so brain is a little whacky but I follow what you are saying and it makes sense, thanks for clarifying.

A yield of 2% is indeed sucky.

thanks

 

[Huskar]

Playing Devil's advocate for a moment, for the decade up to 2007 government debt was shrinking fast. I remember in the late 90's there was discussion about whether or not to completely shut the government bond market, sensibly that wasn't done as the suggestion even then seemed myopic. That's probably why access to the bond market was never modernised, there was no need for it. Even in 2006 there was only around $55b in AUD denominated government debt. Which is really a drop in the ocean, when compared to bank deposits.

Don't forget as well that until the big public floats starting in the 1990's the stock market was pretty much a rich man's pursuit in Australia, so investing outside of property and bank deposits is still a relative new phenomenon in Australia.

Spot on.

For what it's worth my opinion is that the govt should be loading up on debt with such unheard of low bond yields...

 

[DJG]

Is there any reason you guys who are in favour of a TD over the gov't bonds aren't looking towards the Exchange-traded Treasury Bonds (TBs)? - Which is what the OP is about.

Which is about 5% coupon rate on average

I can't see a TD beating that without the disadvantages of locking in your money. Where as the TB's you can buy/sell in case of an emergency, better return elsewhere etc.

ie - http://www.asx.com.au/products/list-of-agbs.htm

EDIT: - Here's a full sheet with the yields, yeap the yield isn't all that much to die for.

http://www.asx.com.au/asx/markets/interestRateSecurityPrices.do?type=GOVERNMENT_BOND

 

[McLovin]

Is there any reason you guys who are against the gov't bonds wouldn't look towards the new Gov't Treasury Bonds which going by the ASX are 4-6+%....which is what the OP is about?
I can't see a TD beating that, also having to lock your money in but with the treasury bonds it's a liquid market...

You're confusing the coupon with the yield.

5% coupon bond at $100 price pays $5 interest. At $200 it still pays $5 coupon, but the yield has halved to 2.5%.

 

[DJG]

You're confusing the coupon with the yield.

5% coupon bond at $100 price pays $5 interest. At $200 it still pays $5 coupon, but the yield has halved to 2.5%.

Thanks mate, just edited the post..

EDIT: - Here's a full sheet with the yields, yeap the yield isn't all that much to die for.

http://www.asx.com.au/asx/markets/interestRateSecurityPrices.do?type=GOVERNMENT_BOND

 

[Zedd]

I understand most of the ins and outs of bonds but have never thought to ask how the issuer determines/decides on the coupon rate. In this case how does the Government decide what is a valid coupon rate? Is it based on what seems to be investor preference in the market at time of auction?

Anyone? I've looked around the web and can't get a satisfactory answer...

 

[McLovin]

Anyone? I've looked around the web and can't get a satisfactory answer...

It's by tender...

http://www.aofm.gov.au/content/borrowing/tender.asp?NavID=31

 

[Zedd]

It's by tender...

http://www.aofm.gov.au/content/borrowing/tender.asp?NavID=31

Initial bond price is determined via tender. Coupon rate is detailed prior to tender unless I've misunderstood. Any other thoughts?

 

[McLovin]

Initial bond price is determined via tender. Coupon rate is detailed prior to tender unless I've misunderstood. Any other thoughts?

Yep, my understanding is the tender bid is submitted as YTM, not price. Which makes sense for a negative art like bond investing.

 

[Sir Osisofliver]

AGB's (Australian Government Bonds) - now you can trade them through the ASX

Just recently the ASX has stared offering AGB's as an exchange traded instrument. ASX has produced some educational material on them...you can access here

I've got some thoughts on this I would like to share, but I'd like to get the opinions of the people on here.

What do we think of this? Is this something that would form part of your long-term investment modelling or would you be looking at it as an instrument you could make short-term gains out of?

Lets get some discussion going.

Cheers

Sir O

 

[Julia]

Re: AGB's (Australian Government Bonds) - now you can trade them through the ASX

For me it would depend on the interest rate.

 

[kid hustlr]

Re: AGB's (Australian Government Bonds) - now you can trade them through the ASX

Just recently the ASX has stared offering AGB's as an exchange traded instrument. ASX has produced some educational material on them...you can access here

I've got some thoughts on this I would like to share, but I'd like to get the opinions of the people on here.

What do we think of this? Is this something that would form part of your long-term investment modelling or would you be looking at it as an instrument you could make short-term gains out of?

Lets get some discussion going.

Cheers

Sir O

One of the guys in the office had a quick look at these and he seemed to think they were (relatively) quite expensive to trade. As such I would think it would make them difficult to trade on a short term basis.

As a retail punter you can always get a better interest rate in a term deposit/high interest account so the only real reason to include these bonds in your portfolio would be to speculate for a cap gain purpose. Easier said than done in my opinion.

 

[McLovin]

Re: AGB's (Australian Government Bonds) - now you can trade them through the ASX

Thread here already...

https://www.aussiestockforums.com/forums/showthread.php?t=26796

 

[Joe Blow]

As these bonds are ASX listed, I have decided to move this thread to the ASX Stock Chat forum.

 

[Sir Osisofliver]

ok thanks for the Merge Joe.

I've just read through here. Most don't seem to understand how this works in terms of the big picture. I went through the ASX online course and frankly was a bit pissed off with the tutorial. On the very first page of the online course they have three little boxes, which you move into position, entitled "Regular income", "Tradeable" and "capital security". Adult learning principles ASX! You know the FIRST and LAST thing that people read is what they remember.

Yet there's some print on the page about "The market price of AGB's may rise or fall presenting the potential for profits or losses".

Capital security =/= losses

I can imagine here the sales job that cowboys are going to do in the product. "Look capital security is an integral part of the product, it's the risk free rate of return after all in economic theory and we need to diversify your portfolio into other asset classes, just sign here."

It's been mentioned here what that mechanism is that can fluctuate the capital value of the bond. The movement of interest rates. Where are interest rates right now may I ask in terms of the big picture? Are they presently extremely high? (which means a falling interest rate environment and an increase in the capital value of the bond?) Why no, I think that they are at the lowest level we have ever seen. Hmm so over the longer term, as our economy improves and the Reserve Bank starts to put interest rates up, what do you think will happen to the capital value of the bond? Correct the capital value will fall.

But But it's a capital security product. Absolutely! Your FACE VALUE didn't change at all. You did say that income was important to you right? (pity that the impact of inflation and taxation over a long holding period meant your real rate of return was a negative number, but you know - couldn't predict the movement of interest rates, it's a non-diversifiable risk after all - bit of a black swan event you know - but that was all in the fine print and you signed).


NOT ADVICE. DYOR - Not Kidding.

Personally the time for bonds IMO is over until the next cycle for a long-term asset. It would be value destroying to consider a bond approach at this point in the economic cycle. Trade it all you want. Long-term hold? No thanks.

I await the next Storm Financial to take advantage of the lack of consumers knowledge.

Cheers

Sir O

 

[McLovin]

I can imagine here the sales job that cowboys are going to do in the product. "Look capital security is an integral part of the product, it's the risk free rate of return after all in economic theory and we need to diversify your portfolio into other asset classes, just sign here."

It's been mentioned here what that mechanism is that can fluctuate the capital value of the bond. The movement of interest rates. Where are interest rates right now may I ask in terms of the big picture? Are they presently extremely high? (which means a falling interest rate environment and an increase in the capital value of the bond?) Why no, I think that they are at the lowest level we have ever seen. Hmm so over the longer term, as our economy improves and the Reserve Bank starts to put interest rates up, what do you think will happen to the capital value of the bond? Correct the capital value will fall.

But But it's a capital security product. Absolutely! Your FACE VALUE didn't change at all. You did say that income was important to you right? (pity that the impact of inflation and taxation over a long holding period meant your real rate of return was a negative number, but you know - couldn't predict the movement of interest rates, it's a non-diversifiable risk after all - bit of a black swan event you know - but that was all in the fine print and you signed).

Indexed CGS's are also now available, fwiw.

 

[Sir Osisofliver]

Indexed CGS's are also now available, fwiw.

Oh yes I'm aware of that, but once again that applies indexing (the effect of inflation) to the face value of the bond, not the capital value of the bond.

With any instrument that has the potential to make profits or losses, (IE the fluctuation in the capital value) timing becomes critical if the investment is not to be value destroying.

Cheers

Sir O

 

[McLovin]

Oh yes I'm aware of that, but once again that applies indexing (the effect of inflation) to the face value of the bond, not the capital value of the bond.

With any instrument that has the potential to make profits or losses, (IE the fluctuation in the capital value) timing becomes critical if the investment is not to be value destroying.

Cheers

Sir O

Fair point. I doubt many current FA's would know the first thing about bond duration and its affect on volatility. Which isn't their fault, it's unlikely they've had to construct a bond portfolio.