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There are three types of bonds: fixed rate bonds, floating rate bonds, and inflation linked bonds.
A fixed rate bond will pay you the same amount of interest over the life of the bond, the coupon rate, normally in semi-annual payments.
Floating rate bonds pay a margin over prevailing interest rates. They use the 90-day bank bill swap rate or 90-day BBSW. That’s a variable benchmark reflecting where rates are expected to be in about 90 days. So as interest rate expectations move up and down, the return on your floating rate note will move up and down at the same pace.
The most common form of inflation linked bond is a capital index bond. This protects the value of your investment because every quarter when inflation is released, the value of your investment increases at the same rate. Importantly, the income or the coupon generator from that inflation linked bond also increases over time as it’s calculated against that face value.
So, assuming inflation is positive, over time both the value of your investment and the
coupon or income generated from that investment will also increase at the rate
What is corporate bond?
The role of corporate bonds in a balanced portfolio
How do corporate bonds work
How to buy and sell corporate bonds
What is a yield?
What is a coupon?
What is maturity date?
What is face value?
What is an issuer?
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*Rate as at 20 November 2017 and are subject to change and before fees. See our Financial Services Guide for any applicable fees.