"Bond Rates" versus "Bill Rates" - an historical perspective and comparison

This article is one of a series of SuperMail articles by Colin Grenfell, who is a superannuation consultant and actuary and Associate Director of SuperEasy.

Each article compares the long term performance of two investment sectors, such as Australian Shares, International Shares, Listed Property or Fixed Interest, or financial indicators, such as the Consumer Price Index (CPI), Average Weekly Ordinary Time Earnings (AWOTE), 90 day Bank Bill Rates or 10 year Bond Rates.

This article compares the "effective" annual rates on "10 year Bonds", with those on "90 day Bank Bills" over the 40 years from 31 March 1963 to 31 March 2003.

Bonds, such as above, are issued by the Australian Government and tend to have lower rates than other fixed interest investments.   Bank bills, such as above, are seen to have some commercial risk and therefore tend to have slightly higher rates than commonwealth government bonds of the same term. The published rates on bonds and bills are usually "nominal" annual rates payable each six months (for 10 year bonds) and payable quarterly (for 90 day bills).


          (1)  if the published rate on 10 year Bonds is 5.40% pa. then the "effective" annual rate is    

                                     [(1 + .5 * .054) ^ 2 ] -1   =     5.47%  , and

          (2)  if the published rate on 90 day Bank Bills is 4.80% pa. then the "effective" annual rate is    

                                      [ (1 + .25 * .048) ^ 4 ] -1   =   4.89% 

The rates on 90 day Bank Bills have been published since 30 September 1969. The bill rates in this article, for periods prior 30 September 1969, were therefore derived by increasing the published nominal rates on 13 week Treasury Notes by 1.37%. This 1.37% increase was the median excess of 90 day Bank Bill rates over 13 week Treasury Note rates during the 10 year period from 30 September 1969 to 30 September 1979.

The following chart plots the effective annual rates, quarter-by-quarter for the last 10 years of the 40 year period. For most of this 10 year period the rates on 10 year bonds were greater than the  rates on 90 day bills:

The following chart plots the rates for the entire 40 year period. During the earlier part of this period the rates on 10 year bonds were often less than the rates on 90 day bills :

Note that for the first half of this 40 year period interest rates were generally increasing but for the latter half they were generally decreasing. Between 30 June 1974 and 31 December 1989 there were nine quarters where bill rates exceeded 18% per annum. 

The next table summarises the 40 year results. 


10 year Bonds

90 day Bank Bills

Average effective annual rate *



Highest effective annual rate *



Lowest effective annual rate *



Standard Deviation*



                                                                             Source: Austmod historical returns before tax


  *  The relative results are dependent on the starting and end dates.  For example the average effective annual returns over various periods have been:




10 year Bonds

90 day Bank Bills


10 years ending 31/03/03




40 years ending 31/03/03




10 years ending 31/03/73




20 years ending 31/03/93





  **   The "standard deviation" indicates, for normally distributed investment returns, that approximately:  

(a)  one-sixth of annual returns are less than (average - standard deviation)

(b)  two-thirds in the range (average - standard deviation) to (average + standard deviation)

(c)  one-sixth of annual returns are more than (average + standard deviation).


To give some indication of the trends in investment returns over the period, the next chart plots the five year (20 quarter) moving averages of the effective annual rates:

Disclaimer:   This article is intended to be a factual analysis of past investment returns.  It is not intended, nor is it to be regarded, as investment/securities advice.  It does not take into account whether any particular investment or type of investment is suitable for your individual circumstances.  It is strongly recommended that you seek professional advice before making any investment choice or decision.