Australian Treasury Bonds

Current 6 months for rates of return on U.S. Treasury bonds are 0.22%, while rates of Australian government bonds are 4.12% over the same period of 6 months. Why is there such a difference in the rate of return? Is there an additional risk assumed by the link to Australia to note?

Yes, this additional risk is the country risk, which in your case is the risk of a country Australia.

You need to bond yields in the Australian context of an economy that does not go into recession during the global financial crisis, plus a current Australian Reserve Bank cash (the U.S. equivalent is the Fed rate funds) interest rate of 4.25% (moderate by historical standards). We went with GFC in government surplus and the national debt at a fraction of the debt of the United States. The economy went into deficit to pay for fiscal stimulus, but the debt is still low compared to that of the United States.

The bond rate is high, first, necessary to compete with other low risk investments in Australia and, secondly, the rate of core inflation is likely to be maintained in the range of 2.5 to 3.0%. The risk of default on a bond of the Australian government is actually close to zero (unless you have successfully invaded by some countries that can not manage an economy).

http://www.bloomberg.com/markets/rates/a ...
http://www.businessweek.com/news/2010-04 ...
http://www.forecasts.org/ffund.htm