FIXED INCOME SECURITIES

MEDIA

Fixed Income Securities

Fixed income securities generally have a set investment period (10-year duration usually) and generate returns via predictable, regular interest repayments. Types of fixed income investments include government bonds and exchange traded funds (ETFs).

 

The benefits of fixed income securities include minimal volatility and stable returns over a fixed period. In comparison to equities, which may provide unpredictable returns (shifts in dividends price – see Nab dividends for the fluctuation due to COVID-19), fixed income instruments have a fixed term and schedule of interest payments, meaning that an investor will be aware of what they roughly stand to make over the duration.

The major risk to fixed income instruments is a rise in interest rates, which causes the price of bonds in the market to fall. Ultimately however, they are premised upon capital stability, that typically means maintaining and gradually growing an already substantial amount of capital. These instruments are predominantly for investors with a large amount of capital to begin with which will make a 2-6% coupon rate worthwhile.

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AGB Example

A type of government bond on the ASX includes exchange-traded Treasury Bond (ETB) GSBG23. GSBG23 was first issued on 18 May 2011 and matures on 21 April 2023. Maturity is when the bond issuer (the Commonwealth Government) agrees to repay you the original sum that you invested into the bond. The coupon rate is the interest payments which the Cth Government will repay you over the life of the bond. For GSBG23 the coupon rate is 5.5% per annum paid semi-annually in arrears on the $100 face value of the bond. GSBG23 is currently being traded at $113.60 on the ASX, amounting to an increase from its initial $100 issue.