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Description - Government & Semi-government Bonds
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,
- have a definite maturity date, and
- are usually issued at a fixed rate of interest, often payable half yearly. More ?
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. More ? |
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.
Assessable value of a government or semi-government bond