STOCKBROKERS have been approached to sell Australian government bonds to retail investors, with the Australian Securities Exchange's boss, Elmer Funke Kupper, confident the end-of-year timetable for the listing of billions of dollars worth of the top-shelf debt can be met.
The listing of government bonds on the ASX is set to give retail investors direct access to the risk-free securities for the first time for nearly three decades. This means small investors will be able to buy and trade government securities, without having to go through a managed fund.
Negotiations between the ASX and Canberra's funding arm, the Australian Office of Financial Management, are reaching the key final stages for the listing of the bonds as market rules are being thrashed out and operational procedures finalised.
The move has been promised for years but has failed to get off the ground given the regulatory complexity involved.
However, it is expected to provide a crucial boost to retail stockbrokers who see the listing of government bonds as an important step in spurring the development of a deeper corporate bond market and providing the sector a fresh revenue stream.
For companies, the option of raising finance from debt is generally cheaper than equity capital.
The initiative was given fresh momentum two years ago when the Johnson report into developing Australia's financial markets, recommended government debt should be again be traded among retail investors.
However, the looming listing coincides with yields on Canberra's bond hitting record lows, mostly as offshore market volatility has prompted big global investors to rush the low-risk debt. An ASX spokesman said the exchange is targeting the end-of-year timetable for the quoting of retail Commonwealth Government Bonds on the exchange.
Mr Funke Kupper is expected to face questions about the listing of the Commonwealth government bonds when he fronts this week's Stockbrokers Association conference in Melbourne. Australia is just one of eight countries comfortably sitting within a "AAA" credit rating from two agencies. But this means at present levels long-term bonds are paying rates fractionally above the rate of inflation.
The large exposure to shares and property by Australian investors has been cited by a range superannuation experts including Jeremy Cooper, the architect of the government's super reforms, as leaving Australians financially exposed to market downturns.
The $7 billion-plus in hybrid shares sold by big name corporates in recent months, suggests there is clear demand for listed debt from retail investors.
Next financial year the AOFM is expected to sell about $35 billion in bonds, with some of this likely to be earmarked to retail investors. Of this, $26 billion will cover maturing bonds.
Frequently Asked Questions about this Article…
What is the ASX government bonds listing and when can retail investors expect to buy them?
The ASX is working with the Australian Office of Financial Management (AOFM) to list Commonwealth Government Bonds on the exchange, giving retail investors direct access to these government securities for the first time in nearly 30 years. The ASX, led by Elmer Funke Kupper, is targeting an end-of-year timetable for the quoting of retail Commonwealth Government Bonds as negotiations and operational rules are finalised.
How will everyday investors buy and trade Commonwealth Government Bonds on the ASX?
Retail investors will be able to buy and trade Commonwealth Government Bonds through stockbrokers on the ASX, without having to go through a managed fund. Stockbrokers have already been approached to sell government bonds to retail clients as the exchange finalises market rules and procedures.
Why has listing government bonds on the ASX been delayed until now?
The plan to list government bonds has been promised for years but stalled because of regulatory complexity. The initiative gained renewed momentum after the Johnson report recommended retail trading of government debt, and talks between the ASX and the AOFM are now in the key final stages.
What does the bond listing mean for retail stockbrokers and the corporate bond market?
The listing is expected to give retail stockbrokers a fresh revenue stream and encourage development of a deeper corporate bond market. Accessible listed debt could make it easier for companies to raise finance via cheaper debt rather than equity, broadening financing options in Australia.
Are Australian government bond yields attractive right now for retail investors?
Yields on Canberra’s bonds are at record lows as global investors have rushed to low‑risk government debt. Even with Australia’s strong AAA credit standing, long‑term bond rates are currently paying only fractions above the rate of inflation, so income from these bonds may be modest.
How much government debt will the AOFM issue next financial year and will any be earmarked for retail?
Next financial year the AOFM is expected to sell about $35 billion in bonds, and some of that issuance is likely to be earmarked for retail investors. About $26 billion of the total will be used to cover maturing bonds.
Does the listing mean retail investors can buy truly risk-free securities?
The article describes Commonwealth Government Bonds as the top‑shelf, risk‑free securities and says the ASX listing will give retail investors direct access to them. Investors should note the article also highlights that current yields are very low, so returns may be modest despite the low credit risk.
Is there evidence of retail demand for listed debt in Australia?
Yes. The article points to more than $7 billion of hybrid shares sold by well-known corporates in recent months as evidence there is clear retail demand for listed debt instruments, supporting the case for relaunching retail trading in government bonds.
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