20 Year Government Bond
What is an Australian 20 year Government Bond?
A government bond is issued by a country’s central or federal government and is calculated in the country's own currency.
The yield required by investors to loan funds to a government is representative of inflation expectations and the likelihood that the debt will be repaid. In this case the term of the bond and relating factors is 10 years.
Uses of the Australian 20 year Government Bond
This bond rate is used not only for a return on the face value, but also as a form of hedging against the Australian dollar interest rates. Bonds are capable of hedging and can be done via a futures contract.
Risks of the Australian 20 year Government Bond
There are a number of risks that can apply to bonds. These can include, but not limited to:
- Inflation risk - this is when the inflation rate increases to a larger rate than which the bond in returning
- Reinvestment risk - this is when the issuer recalls the bond prior to the maturity date