A lot is being heard about the Australian government’s move in the past couple of days with the launch of the first 30-year bond issue. The 30-year bond comes as a part of a long-term strategy by the government for longer-term debt issuance in order to lower the refinancing risk. Further, the affordability of the long-term government debt has been backed by lower interest rates.
For the bond in discussion, the transaction is to be formally priced on Wednesday. The transaction has been said to become a historic one and is considered to be of a benchmark size as stated by the Australian Office of Financial Management. The initial price guidance was fixed at 100 to 107 basis points over the implied yield of the 10-year bond futures contract. With this backdrop, the March 2047 bond is expected to yield about 3.21 per cent to 3.28 per cent, as per the current 10-year rate of 2.21 per cent.
Decision in support from a rise in demand: Considering the current economic dynamics, many experts have expressed demand for such an issue. In fact, for some the offer appears to be quite lucrative. Moreover, the long-term bonds are expected to gain traction from life insurance sector given the returns sought in a stipulated time period. Additionally, such bonds are considered to hedge against risks related to macro-economic factors (Chinese economy and so forth).
Duration of the bond and effect on prices: The price of such bonds can go either ways from even a small change in the bond rate (in this case, as per the 30-year bond rate). This obviously hints for a great risk over equities and does not become a choice of investment for short term investors. At the same time, many still have a preference for such 30-year investment instrument depending on their interests. Otherwise, bonds have been known to deliver historically low rewards while equity income typically generates better deals with perks of dividend income coming in for investors many a times.
Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our
Terms & Conditions has been provided please go through them and also have a read of the
Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in: BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.