Insurance bonds are investment instruments that are offered by life insurance companies in the form of single premium life insurance policies. These bonds allow investors to save for a longer term and investors who hold their bond investments for more than 10 years without any withdrawals in between can able to receive their earnings tax free. The main features of insurance bonds include tax deferred status, access to make investments in guaranteed or protected profits funds, allows writing of investments in trust and reduction on inheritance tax liability of an estate. One big advantage of insurance bonds is to provide regular set of minimum guaranteed income during the life of the plan holder. Before 1970s, insurance companies used to offer investment bonds that can be invested in the with-profit fund of the firms. But later, these companies tried to compete with the unit trust market by offering a range of unit-linked investment funds and policies. Distribution funds were designed to provide a regular income source for investors by balancing the income generating assets like corporate bonds and properties with equities. By the year 2000, these distribution bonds had become very popular in many countries and provided another choice as low risk investment bonds.
Treasury bonds are investments bonds which have longer maturity from 10 years to 30 years. These bonds allow coupon payment system for every six months like treasury notes. Treasury bonds are issued by the national governments in the country’s own currency; where as sovereign bonds are issued in foreign currencies. 10 year treasury bonds are issued by credit institutions, national institutions, government companies and public authorities in the primary markets. In Australia, state treasury bonds like NSW treasury bonds are issued by the state and central government authorities. Underwriting is the most common process of issuing bonds. In this process, one or more number of firms or banks form a syndicate and buy an entire issue of bonds from the Issuer Company or organization. The syndicate group then re-sells these bonds to the investors. Since a bond is a formal contract for the repayment of the borrowed money with interest at fixed intervals, it is much like a loan where the issuer is a debtor, the holder is a creditor and coupon payments are the interest.
10 year treasury bonds provide the borrower with external funds for financing long term investments or to finance expenditures. Yield curve symbolizes the relation between the interest rate and debt amount in a particular currency. The different types of yield curves symbolize the changes in the economic output and growth. During the last one year or so, Australian bond yield curve for 10 year notes has declined with 60 basis points. From 1969 until 2011, the curve averaged with 8 percent and reached a high of around 17 percent in the mid of 1982. The record low of around 4 percent was noted in the beginning of 2009. The shape of the yield curve indicates the expectations of the investor regarding cash rates and inflation.
