AustraliaN bonds

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Stexe

New Member
My friend recently told me Australian bonds have high yields and good for investment over long term. I did some research and quite confused with how Chinese economic slowdown, currencies, and QE could affect the yields. I'm just wondering any stackers could provide a clearer explanations over this?

Thank you guys and have a nice weekends! Cheers.
 
Stexe said:
My friend recently told me Australian bonds have high yields and good for investment over long term. I did some research and quite confused with how Chinese economic slowdown, currencies, and QE could affect the yields. I'm just wondering any stackers could provide a clearer explanations over this?

Thank you guys and have a nice weekends! Cheers.
Click to expand...

Stexe, first you have to define what "High Yield & Long Term" means.

From 1969 until 2013, Australia Government Bond 10Y averaged 7.9 Percent reaching an all time high of 16.4 Percent in July of 1982 and a record low of 2.7 Percent in July of 2012.
http://www.tradingeconomics.com/australia/government-bond-yield

Aussie Bonds are a relfection on the nation's borrowing ability. Part of our credit worthiness consideration is how strong Australia's currency is. Australia is now virtually a commodity backed currency linked to (essentially) a single trading partner; China. Being linked to a narrow basket of comodities to a single trading partner is a fragile position to be in. If any of them falter....

Name Yield 1 Day 1 Month 1 Year Time
Australia Bond 2 Year Yield 2.72% -1 +22 +16 10/18/2013
Australia Bond 5 Year Yield 3.46% -1 +35 +81 10/18/2013
Australia Bond 10 Year Yield 4.11% -2 +23 +94 10/18/2013
Australia Bond 15 Year Yield 4.52% -2 +15 +104 10/18/2013
Change shown in basis points
http://www.bloomberg.com/markets/rates-bonds/government-bonds/australia/

Could probably do better with a term deposit from the major banks...and get your money out easier.
 
Yields are locked in when you purchase them with economic slowdown, QE etc affecting the resale price. If you are only interested in the return over the long term then the resale price doesn't matter.

How good are the current yields? As at 18 Oct they were trading at:
2yr = 2.72% per annum
5yr = 3.46% per annum
10yr = 4.11% per annum
15yr = 4.53% per annum.

These are higher than most other OECD ones (US 10-yr is currently ~2.6% for example).

There are also CPI-indexed bonds available which take out a lot of the risk of potentially high future inflation.
The 2yr one is currently trading at 0.89% + CPI with the 12-yr @ 2.51%.

Based on the yield curves of the non-CPI and CPI-linked ones I think it looks like the market is pricing in a deflation/low inflationary environment over the next couple of years with a long term average of ~2.5% (which is roughly in line with CPI over the past 20 years). Overall, population ageing creates a deflationary pressure and most of the OECD countries are experiencing ageing. China will hit ageing with a vengeance around 2021.

Edit: :lol: Claw beat me to the post.
 
Thank you Clawhammer and Bordsilver for replying. So were you guys suggesting that the yield is 10 years low, meaning the Australian financial is getting better and strong (credit to China commodity needs)? But recently the economic slowdown in China, and Tapering QE has what kind of effects on Australian bonds ? I thought at present the market is volatile and are that will affects Australian bonds too ? Or how it will affect Australian bonds ? Sorry, very confusing on how it works that's why asking advises from stackers experts =)
 
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