Exchange-traded Treasury Indexed Bonds
Disclaimer: The information on this website does not constitute investment advice. You should obtain independent financial advice before buying Exchange-traded Treasury Indexed Bonds.
What are Exchange-traded Treasury Indexed Bonds?
Exchange-traded Treasury Indexed Bonds (eTIBs) offer a convenient and readily accessible way to invest in Australian Government Treasury Indexed Bonds. eTIBs are quoted and traded on the Australian Securities Exchange (ASX).
An eTIB Holder has beneficial ownership of Australian Government Treasury Indexed Bonds in the form of CHESS Depositary Interests (CDIs). This means that as an eTIB holder you will obtain all of the economic benefits (including coupon and principal payments) attached to legal ownership of the Treasury Indexed Bonds over which the eTIBs have been issued.
A one unit holding of an eTIB provides beneficial ownership of $100 Face Value of the Treasury Indexed Bond over which it has been issued.
Characteristics of eTIBs
The Australian Government pays regular coupon interest and pays the nominal value at maturity.
You earn interest at a fixed rate for the life of the investment, payable every three months.
eTIBs provide protection against inflation (as measured by an increase in the Consumer Price Index (CPI)) as both coupon interest payments and the capital value payable at maturity increase in line with changes in the CPI.
You can buy or sell eTIBs any time the ASX market is open.
Choice of maturities
There is a wide range of eTIBs available. Refer to the List of eTIBs.
Risks of eTIBs
Listed below are some risks associated with investing in eTIBs. You should consider these issues when deciding whether to invest in eTIBs.
Changes in market price
The market price of eTIBs will vary over time in response to a variety of influences, particularly in response to changes in the general level of interest rates. In general if interest rates increase the price of an eTIB will fall. Conversely, if interest rates fall the price of an eTIB is likely to increase. If eTIBs are sold before their Maturity Date, they are purchased for an amount greater than their Nominal Value, or there is a decline in the Consumer Price Index (CPI) it is possible for capital losses to be realised.
If there is deflation (a decline in the CPI) the size of Coupon Interest Payments and the Nominal Value payable at the time of maturity can decline. There is a limit to the exposure to deflation due to the floor on Coupon Interest Payments and as the Nominal Value payable at maturity cannot be less than the Face Value amount of the Treasury Indexed Bond. Please refer to the Investor Information Statement for eTIBs (PDF) for further information about how negative CPI changes affect eTIB coupon interest and maturity payments.
Conversion by Australian Government
The Australian Government may at any time, subject to a minimum period of three months’ notice, convert holdings of eTIBs to the underlying Treasury Indexed Bonds directly registered in the Commonwealth Stock Registry. If this occurred you would continue to receive the same Coupon Interest Payments and maturity amounts you were entitled to with the eTIBs but would not be able to sell your investment in Treasury Indexed Bonds on the Australian Securities exchange (ASX).For example, the Australian Government could decide to convert holdings of eTIBs to the underlying Treasury Indexed Bonds if the agreement between the Australian Government and ASX for the trading of Australian Government Bonds on the ASX is terminated.
Note: This is not an exhaustive list and risks will vary between investors. The Australian Government does not guarantee the investment performance of eTIBs and will not compensate investors for investment losses.
How to invest in eTIBs
eTIBs can be bought and sold on the ASX in the same way as listed shares. For more information please see the web page titled How to invest.