Australia's Risk-Free Rate: Current Benchmark & Context
The "risk-free rate" in Australian finance typically references the 10-year Australian Government Bond (AGB) yield—the benchmark for CAPM, DCF, and derivative pricing.
Current Level (2024)
- 10-Year AGB Yield: ~4.0–4.5% (varies daily)
- 3-Year AGB: ~3.8–4.2%
- Cash Rate (RBA): 4.35% (as of Nov 2023 – check RBA.gov.au for current)
- 3-Month Bank Bill Swap Rate (BBSW): ~4.3–4.4% – short-term proxy
Why the 10-Year Bond?
- Highly liquid, deep market (~AUD 800B outstanding)
- Sovereign issuer (AAA/AA+ rated), negligible default risk
- Matches typical investment horizons (equity valuation, infrastructure)
- ASX 200 cost of equity models standardize on 10Y
Historical Context
- 2020–21 (COVID): 0.7–1.0% (emergency easing)
- 2022–23 (Hiking Cycle): Rapid rise from 1.5% → 4.2%
- Pre-GFC (2007): ~6.5%
- Long-term Avg (1990–2023): ~5.0%
Practical Applications
| Use Case | Rate Used | Adjustment |
|---|
| CAPM / WACC | 10Y AGB | + Equity Risk Premium (5–6%), Beta |
| DCF Valuation | 10Y AGB | + Company-specific risk premium |
| Derivatives Pricing | BBSW / OIS Curve | Swap curve bootstrapped |
| Pension Liabilities | Long-term AGB (20–30Y) | Duration matching |
| Project Finance | 10Y AGB + Credit Spread | Project risk, construction risk |
Data Sources (Real-Time)
Always use the rate matching your valuation date. The 0.1% figure (Sept 2021) reflects the pandemic emergency floor—not current reality.
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