Series 24 Bonds in Australia: 2025 Investor Guide

As Australia’s fixed income market evolves, Series 24 bonds have emerged as a talking point among savvy investors in 2025. While these instruments aren’t as widely known as government or corporate bonds, they offer a unique risk-return profile that’s especially relevant in today’s uncertain interest rate environment.

What Are Series 24 Bonds?

Series 24 bonds are a specialised class of fixed income securities, typically issued by financial institutions to raise regulatory capital. In Australia, they are often associated with Tier 2 capital under APRA’s banking rules. Unlike traditional government or blue-chip corporate bonds, Series 24 bonds may carry features such as:

• Subordinated status: They rank below senior debt but above equity in the event of default.

• Longer maturities: Terms can range from 5 to 15 years, with call options that allow the issuer to redeem early.

• Higher yields: To compensate for higher risk, yields typically exceed those of senior bonds or term deposits.

• Loss absorption: Under certain conditions (like bank distress), Series 24 bonds can be converted to equity or written down.

For example, in early 2025, several major Australian banks issued new Series 24 tranches to strengthen their capital buffers ahead of anticipated APRA requirements.

Why Consider Series 24 Bonds in Your Portfolio?

The appeal of Series 24 bonds is their ability to boost yield without taking on the full volatility of equities. They can suit investors seeking to diversify income sources, particularly as term deposit rates remain subdued despite RBA policy tightening. Here’s how Series 24 bonds can play a role:

• Income enhancement: In a climate where the RBA cash rate sits at 4.35% (as of June 2025), some Series 24 issues are offering coupons of 5.5–6.2%.

• Portfolio diversification: Their risk profile sits between senior debt and hybrid securities, providing a middle ground for risk-averse investors who want more than cash but less risk than shares.

• Potential price appreciation: If market yields fall, existing Series 24 bonds can rise in value, offering capital gains potential.

For instance, a Sydney retiree recently allocated 15% of her SMSF’s fixed income allocation to Series 24 bonds issued by a Big Four bank, seeking better returns than government bonds but avoiding full equity market risk.

2025 Regulatory and Market Updates

Australian prudential standards for bank capital have tightened further in 2025, following lessons from international banking stress in recent years. APRA’s new requirements for loss-absorbing capital have prompted banks to issue more Series 24-type securities. Notable 2025 developments include:

• APRA’s revised capital standards: Banks must now hold a higher proportion of Tier 2 capital, driving new Series 24 issuance.

• Retail access expansion: Some Series 24 bonds are now available to retail investors through ASX-listed notes, rather than being limited to institutional buyers.

• Taxation clarity: The ATO confirmed in March 2025 that interest from Series 24 bonds is taxed as ordinary income, with franking credits generally not available.

• Liquidity considerations: While tradable on the ASX, liquidity can be lower than for senior bonds. Investors should be prepared to hold to maturity or face wider bid-ask spreads.

It’s important to note that, while regulatory support for these instruments is strong, the risk of conversion or write-down in a severe banking crisis remains. Investors should weigh this against the higher yields on offer.

Risks and Considerations

Series 24 bonds aren’t risk-free. Key risks include:

• Credit risk: If the issuer faces financial stress, Series 24 holders may suffer losses before senior bondholders.

• Interest rate risk: Rising rates can reduce the market value of existing bonds.

• Liquidity risk: Selling before maturity may be challenging, especially in volatile markets.

Investors should also be aware of call features, which allow issuers to redeem the bonds before maturity, potentially affecting income projections.