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        Strengthen Your Core with Access to Lower Cost Australian Government Bonds

        Government bonds comprise a large proportion of the Australian fixed income market and forms the core of many Australian bond portfolios. We explore the relevance of this exposure to investors today through the following frequently asked questions. 

        3.5 min read
        Marie Tsang
        Fixed Income Strategist, SPDR APAC

        At 61% of the outstanding issuance of Australian bonds1, government bonds are the staple of many broad Australian bond exposures. With an average rating of AAA2, this exposure is also among the most highly rated in the world. Meanwhile, the current interest rate on this asset class is the best it has been in the past decade.3

        Why Are Government Bonds Important in Portfolio Construction?

        Investors generally consider government bonds to play a defensive role in their overall portfolio. In addition to its role as a potential diversifier in a portfolio containing risk assets, investors may also seek this exposure for an element of stability, income, and liquidity –  particularly when it is packaged as an exchange traded fund.    

        But What About the Experience of Bond Investors in 2022?

        Despite 2022 being a negative year for most developed market investment grade fixed income assets, government bonds in Australia were up 1.4%.4

        Are Bonds Still Considered a Diversifying Exposure When They Are Now Positively Correlated with Stocks?

        While it has been broadly observed that bonds are now tending to move in the same direction as stocks the majority of the time, an investor is potentially still better off in times of market stress to have an element of bond exposure in their portfolios. For instance, in Q2 2022 when markets reacted strongly to the beginning of policy rate hikes by the Reserve Bank of Australia (RBA), the S&P/ASX 200 Index fell 12.4%, while a hypothetical exposure of 60% S&P/ASX 200 and 40% S&P Government Bond Index fell less, by 9.0%.5 Over a longer horizon, government bonds continue to provide diversification benefits, often benefiting the broader portfolio when investors need it most. 

        How Would Future Rate Hikes by the RBA Affect Performance?

        Thanks to much higher yields on average, government bond returns are now more resilient against further rate hikes than any time in the past decade, with returns expected to stay positive even if rates increase by up to around 0.9%. 

        How Can I Access This Exposure?

        SPDR® S&P®/ASX Australian Government Bond Fund is an exchange traded fund that offers access to Australian domiciled fixed-rate government bonds, in a cost-effective and convenient way.   

        More on Fixed Income

        Issued by State Street Global Advisors, Australia Services Limited (AFSL Number 274900, ABN 16 108 671 441) ("SSGA, ASL"). Registered office: Level 14, 420 George Street, Sydney, NSW 2000, Australia · Telephone: 612 9240-7600 · Web: www.ssga.com/au.

         

        SSGA, ASL is the issuer of interests and the Responsible Entity for the ETFs which are Australian registered managed investment schemes quoted on the AQUA market of the ASX or listed on the ASX. SSGA, ASL is the AQUA Product Issuer for the CHESS Depositary Interests (or "CDIs") created over Interests in SPY which were first quoted on the AQUA market of the ASX on 13 Oct 2014.  State Street Global Advisors Trust Company (ARBN 619 273 817) is the trustee of, and the issuer of interests in, the SPDR® S&P 500® ETF Trust, an ETF registered with the United States Securities and Exchange Commission under the Investment Company Act of 1940 and principally listed and traded on NYSE Arca, Inc. under the symbol "SPY". This material is general information only and does not take into account your individual objectives, financial situation or needs and you should consider whether it is appropriate for you. You should seek professional advice and consider the product disclosure statement available at www.ssga.com/au, before deciding whether to acquire or continue to hold units in an ETF. The Target Market Determination is also available at ssga.com/au. This material should not be considered a solicitation to buy or sell a security. ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETF's net asset value. ETFs typically invest by sampling an index, holding a range of securities that, in the aggregate, approximates the full index in terms of key risk factors and other characteristics. This may cause the fund to experience tracking errors relative to performance of the index. Investing involves risk including the risk of loss of principal. Diversification does not ensure a profit or guarantee against loss. SPDR®, Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC, Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC, ASX® is a registered trademark of the ASX Operations Pty Ltd, these trademarks have been licensed for use by S&P Dow Jones Indices LLC and sub-licensed for use to State Street Global Advisors, ASL. MSCI indexes are the exclusive property of MSCI Inc.(“MSCI”). MSCI and the MSCI index names are service mark(s) of MSCI or its affiliates and have been licensed for use for certain purposes by State Street. SPDR products are not sponsored, endorsed, sold or promoted by any of these entities and none of these entities bear any liability with respect to the ETFs or make any representation, warranty or condition regarding the advisability of buying, selling or holding units in the ETFs issued by State Street Global Advisors, ASL. The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA, ASL’s express written consent.  

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