How much is too much?
A $200 billion bond backed by a $200bn government loan may be too much, says former Australian Treasurer Andrew Robb.
He says Australia’s fiscal situation is not as dire as some have feared.
The $200b bond was sold by the Federal Government in December 2012.
It was backed by $200 trillion in debt from the previous Government, plus $200.5bn in public sector debt.
But Mr Robb says the Government should have been more careful when buying the bond.
“I think it’s a really high degree of risk.
You can’t say we’re not going to have a recession,” Mr Robb said.
What is a bond?
A bond is a financial instrument that has a nominal value, but is backed by an underlying asset.
This is generally a government bond or a government-owned mortgage.
A bond can be purchased by investors for a fixed price and is usually a government debt instrument.
However, when a bond has been backed by public sector assets, the cost of the bond is paid off over time.
How to protect yourself from the bond market Mr Robb is concerned that a number of people are buying bonds on the basis of the interest rate.
He says a number are taking the risk and are putting their money into bonds that are not guaranteed.
Mr Robb says a bond that has been held for a long period can have a higher risk than a bond held for one year.
If you buy a bond with the intention of holding it for one or two years, you should look for the bond with a lower interest rate, he says.
ABC reporter David Chisholm contributed to this story.
Topics:federal—state-issues,financial-market,debt-and-debt,government-and-“government-regulation”,federal-government,coronavirus-and:financial-crisis,banking-and‑financial-services,financials,market-economics-and/or-finance,economic-trends,coronal-haiks,australiaFirst posted January 03, 2018 17:50:37Contact David ChishevaMore stories from New South Wales