Buying Bonds from the Reserve Bank
Go To
- Important information for investors
- Who can buy bonds?
- What bonds can I buy?
- What terms and conditions apply to the bonds?
- How much can I invest?
- How does the Bank set its price for the bonds?
- What does the yield represent?
- What is the coupon rate, and how is this different from the yield?
- How will my coupon interest be paid?
- How will I receive my face value payment at maturity?
- Do I have to hold my bonds until they mature?
- What about tax?
- What charges apply?
- How can I apply?
- 1. Important information for investors
-
Staff of the Reserve Bank are unable to provide investment advice. Information on this website regarding the Commonwealth Government Bond Facility for Small Investors does not constitute investment advice. Applicants should obtain independent financial advice before buying Commonwealth Government bonds. While interest payments and the face value payment at maturity are guaranteed by the Commonwealth Government, it is possible for capital gains or losses to be made if Bonds are sold prior to maturity.
- 2. Who can buy bonds?
-
Individuals either solely or jointly (excluding partnerships) with up to three other parties. All applicants must sign the application form and be at least 16 years of age. If signed under power of attorney, the original power or a certified copy of the original must be lodged for noting with the application form. Individuals acting as trustees may apply in their capacity as trustee. However, in terms of the Commonwealth Inscribed Stock Act and Regulations, the trustee will be deemed to be the owner of the stock.
From 12 December 2007, all new stockholders must complete an Identification Reference Form following the introduction of the Anti-Money Laundering and Counter-Terrorism Financing Act (2006). Attorneys acting on behalf of stockholder(s) should also complete the Identification Reference Form.
The Purchase Form and the Identification Reference Form (together with certified copies of identity documents) should be lodged in person at either the Sydney or Canberra branch of the Reserve Bank of Australia. Alternatively, these documents can be posted to the Registry of Inscribed Stock. Should you have any queries relating to the completion of the forms, please contact the Registry for assistance.
Failure to satisfactorily complete either document in the required manner will result in your application being returned unprocessed.
Further information can be obtained by contacting the Reserve Bank.
- 3. What bonds can I buy?
-
Subject to availability, the Bank will sell selected series of Treasury Fixed Coupon Bonds and Treasury Capital Indexed Bonds. Treasury Fixed Coupon Bonds pay interest on a semi-annual basis at the prescribed coupon rate, applied to the face value. At maturity, the face value amount is repaid.
Treasury Capital Indexed Bonds pay interest on a quarterly basis at the prescribed coupon rate, applied to the face value. However, the face value is adjusted by indexing the principal to inflation. (Refer to the Terms and Conditions of Issue for Treasury Indexed Bonds for an explanation of this adjustment process. ) At maturity, investors receive the adjusted capital value of the security (i.e. the face value as adjusted for inflation over the life of the bond).
Subject to availability, a range of series across different maturity dates will be on sale at any one time. Details of the individual series that are on sale can be obtained from the Reserve Bank (in Sydney or Canberra). Securities will be issued in the form of inscribed stock only.
When you buy Commonwealth Government Bonds your investment will be recorded in a stock account in your name in the central stock register (the Registry) that is conducted by the Bank. Any subsequent transactions in the Bonds will be noted in the Registry.
- 4. What terms and conditions apply to the bonds?
-
The terms and conditions applying to the Bonds are contained in the Terms and Conditions of Issue, issued by the Commonwealth Government.
A printed copy of the Terms and Conditions can be obtained from the Reserve Bank (in Sydney or Canberra) or the Australian Office of Financial Management.
- 5. How much can I invest?
-
Applications may be made for amounts of $1,000 face value and in multiples of $1,000 up to $250,000 per investor per day (all series combined). Requests to purchase amounts in excess of this will be considered at the Bank's discretion.
- 6. How does the Bank set its price for the bonds?
-
Prices quoted by the Reserve Bank are based on the current market price. Prices may change during a trading day. The actual price charged will be that prevailing at the time of day when the Bank is in possession of sufficient funds and all necessary documents.
The Bank's selling price includes coupon interest accrued since the last coupon payment and up to the date of purchase. Purchasers of Bonds subsequently receive a full coupon payment when it next falls due, irrespective of when the purchase takes place in the coupon period. The only exception to this is when Bonds are purchased during the ex-interest period, which commences seven days prior to a coupon payment date. Investors who purchase Bonds during the ex-interest period do not receive the impending coupon payment. As a result, Bond prices in the ex-interest period do not include accrued interest and are commensurately lower.
For each series, the Bank's price when selling will be higher than the price the Bank pays when buying, consistent with market practice. The approximate price of a particular Bond may be obtained from the Reserve Bank (in Sydney or Canberra). Copies of the bond pricing formulae are available in the Terms and Conditions of Issue, on the Reserve Bank website (www.rba.gov.au) or can be provided by the Reserve Bank on request.
- 7. What does the yield represent?
-
The yield quoted by the Reserve Bank is the 'yield to maturity', which represents the annual rate of return, expressed as a percentage, if the security is held to the maturity date. The calculation is based on the coupon rate, length of time until maturity and the market price. It assumes that coupon interest paid over the life of the security is re-invested at the same rate as the 'yield to maturity'.
- 8. What is the coupon rate and how is this different from the yield?
-
The coupon rate on a Treasury Fixed Coupon Bond or a Treasury Capital Indexed Bond is set when the bond is first issued by the Commonwealth of Australia, and remains fixed for the life of the Bond. In contrast, the yield to maturity on the Bond will vary through time with changes in the Bond's remaining term to maturity and its market price. Since the Bonds that the Bank is selling through the facility have generally been issued some time ago, the coupon rate on a Bond will usually be different from its yield to maturity.
- 9. How will my coupon interest be paid?
-
For Treasury Fixed Coupon Bonds, coupon interest payments are made each half-year. Coupon interest on Treasury Capital Indexed Bonds is paid quarterly. If the coupon interest payment date falls on a weekend or public holiday, the payment will be made on the next business day. Please indicate where you would like your coupon interest to be paid by completing the Interest Instructions on the Purchase Form. Please note that payments can only be made by cheque, in Australian Dollars or by direct credit to an Australian Dollar account with a financial institution in Australia.
Should you choose to have your coupon interest paid directly into an account with a financial institution, the Registry will forward an advice that provides payment details to the address recorded on the register.
- 10. How will I receive my face value payment at maturity?
-
Where no instructions have been given previously, the Bank will notify investors when their investments are about to mature and request instructions for payment of the face value. If no instructions are received, the Bank will send a cheque to the stockholder(s) at the address recorded in the stock register. Payments will be made on the maturity date except if it is a weekend or a public holiday in which case the payment will be made on the next business day.
To ensure timely receipt of notices and payments, investors must notify the Bank of any change in address or instruction, in writing not less than seven days prior to a payment.
The payment of coupon interest and the face value at maturity is guaranteed by the Commonwealth of Australia.
- 11. Do I have to hold my bonds until they mature?
-
No. You may sell your Bonds to the Reserve Bank using this Facility. Refer to Selling Bonds to the Reserve Bank. You may also sell your Bonds through licensed financial services providers that service retail customers in Commonwealth Government Bonds.
If Treasury Fixed Coupon Bonds or Treasury Capital Indexed Bonds are sold prior to maturity, it is possible for capital gains or losses to be realised.
- 12. What About Tax?
-
The Purchase Form has provision for investors to quote their Tax File Number (TFN). It is not compulsory for investors to quote their TFN but tax may be deducted from interest payments if no TFN or exemption has been recorded. In the case of two or more joint investors, at least two parties should quote their TFN or exemption. For more information on TFNs or exemptions please contact the Australian Taxation Office.
Assessable income derived by way of interest – by coupon or by discount (or additionally through capital accruals, throughout the life of Treasury Capital Indexed Bonds) – will be liable to tax according to the provisions of the laws of the Commonwealth and the States.
Please note that Bank staff are unable to provide any taxation advice to applicants. For more information regarding taxation matters, please contact the Australian Taxation Office or a tax adviser.
On request, we can arrange for an annual summary of interest payments to be sent to you at the end of each financial year.
- 13. What charges apply?
-
The Bank makes an administrative charge of $2.50* per $1,000 face value of Bonds purchased. This charge is not included in any price quoted for Bonds.
The administration charge will also be applied if the Bonds are sold back to the Bank at a later date. However, there is no administration charge on the payment of coupon interest or payment of the face value at maturity.
- 14. How can I apply?
-
You should complete the Purchase Form.
From 12 December 2007, all new stockholders must also complete an Identification Reference Form, following the introduction of the Anti-Money Laundering and Counter-Terrorism Financing Act (2006).
Failure to satisfactorily complete either document in the required manner will result in your application being returned unprocessed.
The form(s) may be lodged in person (together with certified copies of identity documents), or mailed to the Registry for Commonwealth Government Inscribed Stock at the Reserve Bank in Sydney or Canberra. Payment can be by either personal cheque or bank cheque. Cheques are to be made payable to Reserve Bank of Australia.
Please note that third party cheques will not be accepted.
Please ensure that the amount of the cheque is sufficient to allow for the Bank’s administrative charge and any increase in the market price of the Bond that might occur prior to the application being processed; excess funds will be returned, upon clearance of cheques.
Footnote
* Charges as stated are current as at 1 March 2004 and are subject to change at the Bank's discretion. [back to text]