Risks of eTIBs
Below are some risks associated with investing in Exchange-traded Treasury Indexed Bonds (eTIBs). You should consider these issues when deciding whether to invest in eTIBs.
- Changes in market price
- The market price of eTIBs can be expected to vary over time in response to a variety of influences, particularly in response to changes in the general level of interest rates. In general if interest rates increase the price of an eTIB will fall. Conversely, if interest rates fall the price of an eTIB is likely to increase. If eTIBs are sold prior to their Maturity Date, they are purchased for an amount greater than their Nominal Value, or there is a decline in the Consumer Price Index (CPI) it is possible for capital losses to be realised.
- If there is deflation (a decline in the CPI) the size of Coupon Interest Payments and the Nominal Value payable at the time of maturity can decline. There is a limit to the exposure to deflation due to the floor on Coupon Interest Payments and as the Nominal Value payable at maturity cannot be less than the Face Value amount of the Treasury Indexed Bond.
- Conversion by Australian Government
- The Australian Government may at any time, subject to a minimum period of three months’ notice, convert holdings of eTIBs to the underlying Treasury Indexed Bonds directly registered in the Commonwealth Stock Registry. If this occurred you would continue to receive the same Coupon Interest Payments and maturity amounts you were entitled to with the eTIBs but would not be able to sell your investment in Treasury Indexed Bonds on the Australian Securities exchange (ASX).For example, the Australian Government could decide to convert holdings of eTIBs to the underlying Treasury Indexed Bonds if the agreement between the Australian Government and ASX for the trading of Australian Government Bonds on the ASX is terminated.
Note: This is not an exhaustive list and risks will vary between investors. The Australian Government does not guarantee the investment performance of eTIBs and will not compensate investors for investment losses.