From Kris Sayce – Port Phillip Insider (Australia) –
Expectant investors will be pleased to know that the Australian Office of Financial Management (AOFM) successfully offloaded $7.6 billion in government bonds to a bunch of suckers.
Have a cigar.
You’re probably among those suckers if you have any exposure to bonds in your managed funds.
The price the government will pay for this debt? A miniscule 3.27% per year for 30 years.
At that rate, if you’re interested to know, the government will pay $7.5 billion in interest to, ahem, lucky investors. That is, of course, on top of the $7.6 billion principal it must repay in March 2047.
Not that $7.6 billion in 2047 will be worth what $7.6 billion is worth today. If the government and Reserve Bank of Australia get their way and inflation runs at a constant 2% over that time, $7.6 billion in 2047 will be the equivalent of $4.2 billion today.
Now can you see why governments like inflation and low interest rates?