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Perpetual knowledge bank series: government bonds

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A government bond is a debt security issued by a national government and sold to investors to support government deficits, be these through spending or other obligations. These are usually considered low-risk investments since the issuing government backs the bonds. For example, U.S. Treasury bonds are widely described as among the safest investments in the world.

The buyers of government bonds in the primary market are typically banks, insurance companies, superannuation funds and pension funds that need to invest in safe and reliable assets to make good on their promises to customers, investors, members and policyholders. These bonds are then traded in the secondary market, mainly by these same investors. Government bonds should be considered alongside corporate bonds, which are issued by private companies.

Locally, the Commonwealth of Australia issues bonds called Commonwealth Government Securities, which tend to pay a lower rate of interest than corporate bonds. This is because the Australian Government is generally considered to be of lower risk than companies that also issue bonds. The Australian Government has never defaulted on the interest payments on the bonds that it has issued or on the repayment of the principal amount invested in them. For this reason, government bonds are considered to be a highly secure investment product, second only to cash at the bottom of the risk spectrum.

This analysis has been prepared by Perpetual Investment Management Limited (PIML) ABN 18 000 866 535, AFSL 234426. It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable for your circumstances. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.

The information is believed to be accurate at the time of compilation and is provided in good faith. This document may contain information contributed by third parties. PIML and PSL do not warrant the accuracy or completeness of any information contributed by a third party. Any views expressed in this document are opinions of the author at the time of writing and do not constitute a recommendation to act. 

The product disclosure statement(PDS) for the Perpetual Diversified Income Fund issued by PIML, should be considered before deciding whether to acquire or hold units in the fund. The PDS and Target Market Determination can be obtained by calling 1800 022 033 or visiting our website http://www.perpetual.com.au

No company in the Perpetual Group (Perpetual Limited ABN 86 000 431 827 and its subsidiaries) guarantees the performance of any fund or the return of an investor’s capital. Past performance is not indicative of future performance.