This article covers:

• What are Bonds?

• Types of Exchange-Traded Bonds

• What are the Benefits of ETBs?

• How to Buy and Sell ETBs?

• Other Considerations

Selfwealth has just added the functionality to invest in Exchange Traded Bonds. Not sure what they are? Read on.

you're no doubt already familiar with exchange-traded funds (ETFs), which are one of the most popular products on the Selfwealth platform, but now you can also invest in exchange-traded bonds.

ETBs, for short, provide a simple and convenient option for investors to invest in bonds via ASX-listed securities.

Here are all the necessary details to get you started with our latest product addition.

What are Bonds? 

Let start with bonds, which are the building blocks of an ETB.

A bond is a type of debt package' issued by companies or governments in order to borrow money. 

When you buy a bond, you are providing the issuer a loan. In turn, they agree to pay you back the original face' value of the loan on the maturity' date in the future.

Bonds are a fixed income investment; investors receive periodic interest payments until maturity, also known as coupon' payments much like dividends.

Learn more about investing in fixed income here.

Types of Exchange-Traded Bonds

There are different types of ETBs on the ASX, including exchange-traded corporate bonds (xTBs), which are issued by ASX companies like Qantas (ASX: QAN) and Telstra (ASX: TLS). Our focus below is exchange-traded Australian Government Bonds (eAGBs), which offer exposure to Treasury Bonds.

These securities provide a beneficial ownership of bonds in the form of CHESS Depositary Interests (CDIs). You receive all economic benefits (e.g. coupons, face value) associated with legal ownership of the bonds over which the ETBs have been issued. 

There are two types of eAGBs on the ASX:

1. Exchange-traded Treasury Bonds (eTBs)

2. Exchange-traded Treasury Indexed Bonds (eTIBs)

The main difference between the duo is that eTIBs offer protection against inflation. Coupon payments and the face value of an eTIB adjust with the Consumer Price Index (CPI). Coupons are paid every three months, versus six months for eTBs.

Some examples of eAGBS include:

• ASX: GSBG23 - 5.5% coupon interest rate (eTB payable biannually); maturity 21 April, 2023

• ASX: GSBG24 - 2.75% coupon interest rate (eTB payable biannually); maturity 21 April, 2024

• ASX: GSIQ25 - 3.0% coupon interest rate (eTIB payable quarterly); maturity 20 Sep, 2025

A full list of eTBs may be seen here. eTIBs may be viewed here.

Take note, coupon interest rates are set when a bond is first issued. They are fixed for the life of the bond, but the rate of return on a bond (yield to maturity) varies over time due to changes in the market price of the bond, and the time until maturity.

What Are the Benefits of ETBs?

There are a number of benefits to exchange-traded bonds.

• Diversification: ETBs provide exposure to another asset class, which may help you diversify your portfolio and reduce risk.

• Regular, consistent cash flow: Coupon interest is paid at a fixed rate for the life of the investment (every six months for eTBs; every three months for eTIBs)

• Low credit risk: AGBs are considered to have the lowest possible credit risk of all debt-based investments being issued by the Australian Government.

• Liquidity: You may trade eAGBs on the ASX, which means your money is not locked away for the full term of the investment.

• Product breadth: You may choose from a number of exchange-traded bonds.

• Hedging protection: eTIBs allow you to hedge against inflation.

How to Buy and Sell ETBs?

You can buy or sell exchange-traded Australian Government Bonds just as you would buy or sell ASX-listed shares. They are settled through CHESS, with a flat-fee rate of $9.50 per trade.

There are no special requirements for Selfwealth members to invest in this type of security. As long as your bank details are correctly on file, coupons will be paid directly to your nominated account.

Before buying eAGBs, you should obtain independent financial advice and read the relevant Investor Information Statement and Term Sheets.

Other Considerations

Like any financial product, there are risks to consider. These include but are not limited to:

• Market prices for eAGBs share an inverse relationship with interest rates - if rates rise, market prices tend to fall, and vice versa. Capital losses may occur if eAGBs are sold before maturity, or if purchased for more than their face value.

• The Australian Government may, at any time, subject to a minimum period of three months' notice, convert eAGBs to the underlying Treasury Bonds. While your economic interests would be unaffected, you would be unable to sell the bonds on the ASX.

• For eTIBs, deflation could reduce coupon payments and the value payable at maturity, although limits mitigate the downside (read more here) 

For information around tax consequences, please contact a tax professional.

Lastly, be wary of anyone offering to sell you eAGBs or Treasury Bonds. Only the Australian Government may issue Treasury Bonds, and eAGBs may only be bought through licensed ASX brokers, securities dealers, or financial service providers.

For more information on exchange-traded Australian Government Bonds, please refer to this fact sheet from the ASX.If you have any questions, please visit help.selfwealth.com.au for a quick answer.If you want to talk to us directly, you can get us on live chat during trading hours, or email us at support@selfwealth.com.au.