Australia Yearbook - 2001

Chapter 26—Financial system 897
26.18 BOND MARKET, Market Yields
June 1998 June 1999
June 2000
% p.a. % p.a. % p.a.
Treasury bonds
3 years 5.25 5.63 5.97
5 years 5.38 5.90 6.05
10 years 5.58 6.27 6.16
New South Wales T-corp bonds
3 years 5.40 5.89 6.29
5 years 5.58 6.24 6.42
10 years 5.86 6.61 6.60
Finance company debentures
2 years 5.30 5.10 6.30
3 years 5.35 5.45 6.40
Source: Reserve Bank of Australia Bulletin.
Bond market
Bonds are issued with original terms to maturity
of one or more years. Usually the investors are
paid a set periodic interest, called a coupon, for
the life of the bond and receive their initial
investment back at maturity. Some bonds have
variable interest rates, some have principal
repayments indexed, and there are small amounts
of zero-coupon or deep discount securities which
are issued at a discount to face value.
Governments, trading enterprises and financial
institutions issue bonds to finance long-term
requirements. For these entities, the bond
market generally provides a cheaper source of
funds than borrowing from banks and other
financial institutions. Table 26.18 shows the
market yields at end June of the last three
financial years for a range of bonds.
The main issuers of bonds are the
Commonwealth Government and State
Governments, the latter through their central
borrowing authorities. Issues by Commonwealth,
State and local public trading enterprises may be
guaranteed by their respective governments. This
provides the bond issue with a higher credit
rating, meaning that the market will purchase the
bonds at a lower yield. Corporate bonds are
issued only by very large private trading and
financial enterprises. The amounts outstanding
on bonds at end June of the last three financial
years are shown in table 26.19.
Foreign exchange market
The foreign exchange market is the means
whereby currencies of different countries can be
bought and sold. In October 1983, the
Commonwealth Government decided to float the
Australian dollar, allowing its value to be
determined by market forces with few exchange
controls and little Reserve Bank intervention.
Prior to 1983, the Australian dollar was pegged to
a basket of currencies which were weighted
according to their trading significance to
Australia. Table 26.20 shows the value of the
Australian dollar against major currencies at end
June of the last three financial years.
Currencies are traded for many reasons: because
of exporting or importing requirements, investing
or borrowing overseas, arbitraging (i.e. taking
advantage of short-term discrepancies in rates) or
speculating on possible exchange rate
movements with a view to making a profit.
Table 26.21 shows daily averages of foreign
exchange turnover against all currencies.