Author Topic: State government bonds - an additional inflation hedge?  (Read 758 times)


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State government bonds - an additional inflation hedge?
« on: April 10, 2023, 07:32:28 AM »
In my never-ending search for low-risk inflation protection, I've stumbled upon an interesting asset that I might consider adding to my portfolio, if the opportunity arises: state government bonds.

More specifically, it appears that a branch of the NSW government, t-Corp, issues what it calls "Capital Indexed Bonds" or CIBs. Going off their memorandum, these appear to work the same way as Australian Government Indexed Bonds (eTIBs).

You purchase a bond at a given price for a given adjusted-face-value and coupon rate. Then every quarter the bond pays you the coupon amount for that quarter plus an inflation adjustment. On maturity, you get the adjusted-face-value back, so that your invested principle will have also increased according to inflation. (They calculate inflation based on the Consumer Price Index (CPI) provided by the ABS, so it would be the national CPI, not just for NSW.)

The thing that makes these bonds look potentially attractive to me is the coupon rate (2.75% and 2.5% for the two available bonds respectively). This rate would be better than eTIBs if the price was close enough to adjusted-face-value. And these do seem like low-risk investments - I find it hard to imagine the whole of the NSW state government defaulting on its bonds. Or at least, it seems about as likely as the Australian government defaulting on its bonds, given that NSW makes up a big chunk of the country by practically any measure (GDP, population, foreign investment, etc).

The problem is, I'm not yet sure what the price actually is or how/where to buy them, or if it's even possible for a retail investor like me to buy them. Unlike with eTIBs, these don't appear to be available as ASX-listed securities. The website refers to a "dealer panel", composed largely of big investment banks, implying that the intended audience is more likely institutional rather than retail.

Frustrating that many governments seem to do almost the best they can to obscure and hide anything that might look like a good long-term investment for a regular citizen. Almost as if they want to keep us all poor and desperate for money. 😄

Anyway, just thought I'd relay this interesting finding and see if anyone might know more about this subject than I do. Thanks for reading!
« Last Edit: April 10, 2023, 07:40:57 AM by jaysee »