When you invest in bonds, you are lending money in return for regular payments, known as coupon interest payments. All bonds have an agreed or face value, when they are issued and, as Moneysmart explains “ If you hold the bond until maturity, you get back the face value (or principal) of the bond.”
If you sell a bond before maturity, you’ll get the market value, which could be lower or higher than the face value.
Broadly speaking, there are two types of bonds: corporate and government bonds. Let’s start with the riskier of the two: corporate bonds.
Corporate bonds are primarily issued and traded on the over-the-counter (OTC) market and they are a way for large companies to raise money to finance their projects. As the minimum investment rate is typically in the hundreds of thousands of dollars, it is unusual for the mum-and-day investor to buy into corporate bonds.
The standard Australian government bond (AGB) guarantees a rate of return on the bond’s value when held to maturity, while semi bonds can only be bought and sold through state and territory treasury corporations only,
Investors who are after a regular return on their bonds, often opt for Exchanged-traded Treasury Bonds (eTBs). There are two ways you can invest on the ASX in this way: through the standard (eTBs) or via Treasury Indexed Bonds (eTIBs).
So what’s the difference between the two?
With Exchange-traded Treasury Bonds (eTBs) you receive coupon interest payments, usually every six months, and can buy or trade the bonds anytime the ASX is open. These securities provide ownership of bonds via CHESS Depositary Interests (CDIs) and carry a fixed annual rate of interest. The loan is repaid to the investor once the bond matures.
Exchange-traded Treasury Indexed Bonds (eTIBs), on the other hand, are indexed to the consumer price index, which means the coupon payments are adjusted in line with inflation. The payments are usually made every three months instead of twice a year.
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