Author Topic: Australian equivalent of iBonds and TIPS?  (Read 1979 times)

jaysee

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Australian equivalent of iBonds and TIPS?
« on: August 22, 2022, 12:28:13 AM »
From listening to a lecture by Zvi Bodie, I learned about these fantastic things they have in America called iBonds and TIPS.

These are bonds that can be purchased directly, priced at face value, and earn interest above inflation.

It seems like this is almost an ideal investment for most of a portfolio, especially in early retirement.
1. You can maintain principle
2. You can earn interest
3. You can avoid inflation

I would ideally like to have 50% or more of my portfolio in such a low-risk investment, if it were available to me.

Unfortunately, as far as I know, this is a US-only investment.

For Australian investors:

The closest thing I could find is eTIBs. Unfortunately these can only be purchased from the ASX via a broker or online brokerage, which causes the price to fluctuate.

For example, at the moment, for the 21 August 2035 2.00% eTIB (GSIO35) CMC Markets is quoting me $149.990. (See screenshot)



This is, of course, far above the $100 face value, so maybe not a good deal (though I'd have to run numbers I guess to work out whether it would be a guaranteed net loss after compounding interest and ex. expected inflation).

Does any non-US person know if there any foreign equivalents of directly-held, inflation-protected bonds for, e.g., UK, Australian or Canadian investors?

If not, are you jealous of the Americans having such awesome investments? :D

Or any general thoughts?
« Last Edit: August 22, 2022, 01:01:42 AM by conwy »

Gremlin

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Re: Australian equivalent of iBonds and TIPS?
« Reply #1 on: August 23, 2022, 03:22:54 PM »
They have their place but they are no magic pudding.

They typically underperform traditional bonds in periods of inflationary stability.  Often by a lot.

Tax is still applied on the nominal growth, not the inflation adjusted growth. Simply tracking inflation may still leave you behind after tax.

You don’t necessarily get the implied inflation protection unless you buy at inception and hold til maturity.  At other times, prices fluctuate driven by how volatile the expected inflation is.

jaysee

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Re: Australian equivalent of iBonds and TIPS?
« Reply #2 on: August 23, 2022, 09:54:44 PM »
They have their place but they are no magic pudding.

They typically underperform traditional bonds in periods of inflationary stability.  Often by a lot.

Tax is still applied on the nominal growth, not the inflation adjusted growth. Simply tracking inflation may still leave you behind after tax.

You don’t necessarily get the implied inflation protection unless you buy at inception and hold til maturity.  At other times, prices fluctuate driven by how volatile the expected inflation is.

Agree with all your points.

However, as you said, they have their place.

Specifically, I believe their place is for that portion of your portfolio for which you wish to preserve the value of the principle after inflation with near-zero risk. (Government default risk.)

(That portion might be 0% for many people but for me it’s >0%.)

Now with that out of the way…

Is there anything equivalent that an Australian investor could access?
« Last Edit: August 23, 2022, 10:00:42 PM by conwy »

Gremlin

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Re: Australian equivalent of iBonds and TIPS?
« Reply #3 on: August 24, 2022, 04:49:49 AM »
Isn’t an eTIB what you want?

That example you quoted doesn’t seem mispriced to me.

The 2035 maturity was issued in 2013. So it’s not $100 of face value in today’s dollars, it’s 2013 $.

And the yield curve now is quite different to then which will also be impacting price.