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HOME INVESTMENT SECTORS AUSTRALIAN SHARES versus BALANCED PORTFOLIO DIRECT PROPERTY versus AUSTRALIAN SHARES BALANCED PORTFOLIO versus SALARY INDEX AUSTRALIAN SHARES versus LISTED PROPERTY FIXED INTEREST versus CASH BOND RATES versus BILL RATES AUSTRALIAN SHARES versus INT SHARES AUS INTEREST versus INT INTEREST CASH versus INFLATION BALANCED versus CAPITAL STABLE AUS SHARES versus FIXED INTEREST AUS INVESTMENT PERFORMANCE 1960 - 2005 CONTACT |
"Bond Rates" versus "Bill Rates" - an historical perspective and comparison This article is one of a series of SuperMail articles by Colin Grenfell, who is a superannuation consultant and actuary and Associate Director of SuperEasy. Each article compares the long term performance of two investment sectors, such as Australian Shares, International Shares, Listed Property or Fixed Interest, or financial indicators, such as the Consumer Price Index (CPI), Average Weekly Ordinary Time Earnings (AWOTE), 90 day Bank Bill Rates or 10 year Bond Rates. This article compares the "effective" annual rates on "10 year Bonds", with those on "90 day Bank Bills" over the 40 years from 31 March 1963 to 31 March 2003. Bonds, such as above, are issued by the Australian Government and tend to have lower rates than other fixed interest investments. Bank bills, such as above, are seen to have some commercial risk and therefore tend to have slightly higher rates than commonwealth government bonds of the same term. The published rates on bonds and bills are usually "nominal" annual rates payable each six months (for 10 year bonds) and payable quarterly (for 90 day bills). Therefore: (1) if the published rate on 10 year Bonds is 5.40% pa. then the "effective" annual rate is [(1 + .5 * .054) ^ 2 ] -1 = 5.47% , and (2) if the published rate on 90 day Bank Bills is 4.80% pa. then the "effective" annual rate is
[ (1 + .25 * .048) ^ 4 ] -1 = 4.89%
The following chart plots the rates for the entire 40 year period. During the earlier part of this period the rates on 10 year bonds were often less than the rates on 90 day bills :
Note that for the first half of this 40 year period interest rates were generally increasing but for the
latter half they were generally decreasing. Between 30 June 1974 and 31 December 1989 there were nine quarters where bill rates exceeded 18% per annum.
Source: Austmod historical returns before tax
* The relative results are dependent on the starting and end dates.
For example the average effective annual returns over various periods have been:
** The "standard deviation" indicates, for normally
distributed investment returns, that approximately:
(a) one-sixth
of annual returns are less than (average - standard deviation)
(b) two-thirds
in the range (average - standard deviation) to (average + standard deviation)
(c) one-sixth
of annual returns are more than (average + standard deviation). To give some indication of the trends in investment returns over the period, the next chart plots the five year (20 quarter) moving averages of the effective annual rates:
Disclaimer: |
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SuperEasy Pty Ltd is not licensed to provide advice on investments, or legalities of the types of investments that you can have. SuperEasy® strongly recommends that you seek professional advice before making any investment choice or decision! |
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