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Description - Government & Semi-government Bonds

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What are government and semi-government bonds?

Government and semi-government bonds are securities which:

  • are issued by a:
  • Australian, state or local government authority, or
  • government guaranteed authority, such as Telstra or a State Electricity Power Supplier, such as Pacific Power,
Indexed government and semi-government bonds

Some authorities, including the Reserve Bank on behalf of the Australian Treasury, issue indexed bonds. The following table describes the two types of indexed bonds.

Type

Description

Income

The rate of interest paid each year varies regularly according to changes in the consumer price index.

Capital

The capital value may increase from time to time, in line with the average weekly ordinary time wages rate. The rate of interest is normally low at around 2% to 3% per year, but is applied to the changing capital value.

Value of government and semi-government bonds

The following table describes the three values associated with government and semi-government bonds.

Value

Description

Face value

The amount that will be repaid to the pensioner at the end of the term. For example, a pensioner buys a $10,000 face value semi-government bond. If they hold this bond until its maturity, they will receive $10,000 from the relevant semi-government authority.

Purchase price

The amount of money that the pensioner actually pays for the bond. For example, a pensioner pays $9,800 for a $10,000 face value bond.

Market value

The amount that the pensioner can receive if they sell the bond. For example, a pensioner pays $9,800 for a $10,000 face value bond and 6 months later approaches a fixed interest dealer to obtain a price for the bond. Due to changes in market conditions, the dealer offers the pensioner $9,600 for the bond.    

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Assessable value of a government or semi-government bond

9.5.4/Deemed Income from Savings Investments

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Reviewing the value of government and semi-government bonds

The market value of government and semi-government bonds changes in response to market conditions, particularly changes in interest rates. The value of government and semi-government bonds is reviewed:

  • when they mature, or
  • if a pensioner advises of changes in the value of the bond:
  • on review forms,
  • in response to notification requirements, or
  • at any other time.