How do you buy govt. bonds?

newmug

Hi folks. As it says in the title, how does one actually go about buying govt. bonds? If there is a "bond auction", what does that mean? What is the actual, realtime procedure involved for buying a bond, and cashing it in again?

Regards,
Newmug

Deco99

Typically the cost of these bonds can range from a million to 10 million euro, they have a fixed interest rate that pays on maturity, ranging again usually from a year to 10 years, (the longer the bond the higher the interest rate typically.)
So for example, you go along to one of these auction and have ten million spare, you purchase a ten year bond @ 8%, the govt takes your ten million wastes it on public service and in ten years has to pay you back the ten million plus the interest. usually the bigger the risk of default the higher the interest. Previously Govt bonds were considered the safest investment until the current economic crisis and would have had typically low interest rates.(2-3%) but as Ireland became threatened with bankruptcy the interest on its bonds started to go upwards to 7% i think. As the bonds were seen as safe, it was typically risk averse investors such as pension funds and the like would invest in them for the steady return after ten years.

newmug

Thanks Deco. But what, or where, are these bond "auctions"?

I had a look at the NTMA website, they list a range of bond "products" you can buy, and a list of brokers you can buy them through, but at around 3%AER, not 8% or 10%, and no mention of "auctions".

Onikage

Hmm, think they would be securities backed by a number of these bonds rather than the real deal. The auctions are just whenever new bonds are issued, for the times we're in you can find details on the front page of any major newspaper!

magooly

Govt Bonds are 'auctioned' on the Primary market initially, to affiliated market participants who are generally large investment banks pension funds or the ECB when a country needs help propping up the sale.

These bonds are then traded daily throughout their life (maturity) on the secondary market particularly around the threat of a rating agency downgrade.

You can't personally trade or hold these bonds unless you have 1M lying around where you will be classed as an investor and your friendly broker at these banks will do that for you as part of your portfolio with them.

Deco99

newmug wrote: »

Thanks Deco. But what, or where, are these bond "auctions"?

I had a look at the NTMA website, they list a range of bond "products" you can buy, and a list of brokers you can buy them through, but at around 3%AER, not 8% or 10%, and no mention of "auctions".

EPIC FAIL on my part, never answered your question. That'll teach me for posting half asleep on the couch:rolleyes:.

Like any auction the govt or agency selling the bonds will advertise in advance, giving notification of location.

Black Rock

There have been no Irish Government Bond auctions since Ireland availed of the ECB/IMF funding. However, individuals can still buy bonds in the secondary market - in other words buy old bonds that were issued before the issuance stopped. The current owner of those bonds now wishes to sell them on to someone else and is willing to do so through a broker.

The brokers that can sell you bonds are listed here -
http://www.ntma.ie/Publications/2009/WhereBuyBonds.pdf

The following table lists the bonds that are for sale - http://www.ntma.ie/GovernmentBonds/Daily_Bonds_Outstanding.pdf

The yield to maturity column on that table shows the return that you will get if you buy the bonds today and hold them until they mature i.e. if you buy the 4.5% 2018 Bond you will get a return of 6.98% per annum.

I believe that the coupon (4.5%) is taxable at your marginal rate of income tax (not DIRT rate) but that the capital gain is free of tax - HOWEVER YOU NEED TO TAKE INDEPENDENT TAX ADVICE.

newmug

^^^^ Now yer talkin!