Treasury Indexed Bonds
Treasury Indexed Bonds are medium to long-term securities for which the capital value of the security is adjusted for movements in the Consumer Price Index (CPI). Interest is paid quarterly, at a fixed rate, on the adjusted capital value. At maturity, investors receive the adjusted capital value of the security – the value adjusted for movement in the CPI over the life of the bond.
All Treasury Indexed Bonds are exempt from non-resident interest withholding tax (IWT).
|Coupon and Maturity||Date of first issue||Face Value ($m AUD)||Modified Duration||ISIN||Next Coupon Payment date*||Kt factor||Term sheet — PDF|
|4.00% 20 August 2020||10 October 1996||3,040||1.23||AU0000XCLWE2||20 May 2019||172.60||87KB|
|1.25% 21 February 2022||21 February 2012||6,290||2.72||AU000XCLWAB3||21 May 2019||114.33||87KB|
|3.00% 20 September 2025||30 September 2009||7,443||5.82||AU0000XCLWP8||20 June 2019||123.15||88KB|
|0.75% 21 November 2027||23 August 2017||4,450||8.24||AU000XCLWAV1||21 May 2019||103.23||219KB|
|2.50% 20 September 2030||16 September 2010||4,793||10.04||AU0000XCLWV6||20 June 2019||120.14||88KB|
|2.00% 21 August 2035||26 September 2013||3,950||14.18||AU000XCLWAF4||21 May 2019||111.34||88KB|
|1.25% 21 August 2040||11 August 2015||3,550||18.84||AU000XCLWAO6||21 May 2019||106.84||374KB|
|1.00% 21 February 2050||18 September 2018||3,750||26.69||AU0000024044||21 May 2019||101.29||218KB|
This table is updated on a weekly basis.
* If the coupon interest payment date is not a business day, payment will be made on the next succeeding business day without payment of additional interest.
Note: Kt factor is the factor with which the original face value of an indexed bond is adjusted in order to reflect the cumulative capital accretion owing to changes in the CPI.
Quoted yields for Treasury Indexed Bonds
Are easily accessible via:
- Reserve Bank of Australia
- Bloomberg: ACGB Govt
- Thomson Reuters: AU/ILB1
Active market makers
There is an active secondary market for Treasury Indexed Bonds. The Australian Financial Markets Association (AFMA) has published conventions that apply to trading in the over-the-counter market of long-dated debt securities such as Treasury Indexed Bonds.
Active Treasury Indexed Bond market makers are listed in How to Buy AGS.
Treasury Indexed Bonds are both quoted and traded on a real yield to maturity basis rather than on a price basis. This means the price is calculated after agreeing on the real yield to maturity. The price is calculated by inputting the real yield to maturity into the appropriate pricing formulae.
The pricing formula used for Treasury Indexed Bonds per $100 face value, rounded to the third decimal place except during the last interest period (the period beginning when a Treasury Indexed Bond goes ex‑interest for the second last time) when there is no rounding, is as follows:
Settlement amounts are rounded to the nearest cent (0.5 cent being rounded up).
As an example of the working of the formula consider the 0.75% 21 November 2027 Treasury Indexed Bond for a trade settling on 27 October 2017. Assuming a real yield to maturity of 0.93 per cent per annum the price per $100 face value is calculated to be $98.638.
In this example, i = 0.002325 (i.e. 0.93 divided by 400), f = 25, d = 92, g = 0.1875 (i.e. 0.75 divided by 4) and n = 40. The K value of this bond (Kt-1) on 21 August 2017 (the previous interest payment date) was 100.00 and the K value (Kt) for 21 November 2017 (the next interest payment date) is 100.32. The 0.32 per cent increase in the K value reflects the average increase in the Consumer Price Index over the two quarters to the June quarter 2017.
If the trade was for Treasury Indexed Bonds with a face value of $20,000,000 the settlement amount would be $19,727,600.00.
Ex-Interest Treasury Indexed Bonds
The ex-interest period for Treasury Indexed Bonds is seven calendar days. With ex-interest Treasury Indexed Bonds the next coupon payment is not payable to a purchaser of the bonds. In this case, calculation of an ex-interest price is effected by the removal of the ‘1′ from the term in formula (1), thereby adjusting for the fact that the purchaser will not receive a coupon payment at the next interest payment date. The formula in this instance is therefore:
Note that the Kt in formula (2) is still the indexation factor on the next interest payment date, even though there is no interest payable to the subscriber or purchaser on that date. That is, this Kt continues to apply in the ex-interest period.
Last updated: 17 May 2019