ASX to offer bond trading
The ASX will offer a range of bond maturities that investors will be able to buy and sell through their existing full-service or online broker accounts.
Australian government bonds are fixed-income securities that pay interest periodically and return their face value at maturity. For investors whose investments are concentrated in shares or property, they offer diversification into a low-risk income-producing asset class.
Government bonds are usually bought by institutional investors, which buy in minimum parcels of $500,000. High-net-worth investors can buy bonds from specialist brokers that offer them in minimum parcels of $50,000.
To make them available to retail investors, the ASX will offer them in the form of CHESS depository interests (CHESS is the ASX's settlement and holding system). In this form, they will be sold in $100 units.
The general manager of retail distribution at online broker CommSec, Brian Phelps, says clients will be able to buy and sell bonds through their trading accounts in the same way they buy and sell shares.
Phelps says CommSec brokerage will be the same as for Australian share trading, starting at $19.95 per online transaction. Settlement of a trade will take place in an existing trading account, so clients will be able to view their bond holdings in the same place as their share and managed-fund investments.
Two types of bonds will be sold on the ASX: conventional bonds and indexed bonds. Indexed bonds provide protection against inflation by adjusting their face value in line with the movement in the consumer price index.
There will be a range of maturities and coupon rates. Government bonds on issue have maturity dates stretching from December 2013 to September 2030. The ASX has not yet announced the range of maturities that will be on offer.
Current bond yields are low - about 2.7 per cent on a three-year bond and 2.9 per cent on a five-year bond. After taking inflation into account, the real rates of return at the moment are close to zero.
Robert Mead, a portfolio manager at fund manager Pimco, says investors should look at bonds as a defensive asset in their portfolio.
Frequently Asked Questions about this Article…
The Australian Securities Exchange (ASX) is launching exchange-traded Australian government bonds for retail investors in May. These bonds will be available to buy and sell through investors' existing full-service or online broker accounts.
Retail investors will buy government bonds on the ASX through their usual broker accounts (full-service or online), in the same way they buy and sell shares. CommSec says settlement and viewing of bond holdings will happen inside existing trading accounts.
The ASX will offer government bonds as CHESS depository interests (CHESS is the ASX's settlement and holding system). In this form, bonds will be sold in $100 units, allowing retail investors to purchase much smaller parcels than the traditional institutional minimums.
Two types of government bonds will be sold on the ASX: conventional bonds and indexed bonds. Indexed bonds adjust their face value in line with movements in the consumer price index, providing protection against inflation.
There will be a range of maturities and coupon rates. Government bonds currently on issue have maturity dates from December 2013 to September 2030, but the ASX has not yet announced which specific maturities will be offered to retail investors.
At the time of the article, bond yields were low — about 2.7% on a three-year bond and 2.9% on a five-year bond. After taking inflation into account, real rates of return were close to zero, so investors should factor inflation into their return expectations.
CommSec said brokerage for trading bonds will be the same as for Australian share trading, with online transactions starting at $19.95. Settlement will occur within existing trading accounts so bond holdings appear alongside shares and managed funds.
Australian government bonds are fixed-income securities that pay periodic interest and return face value at maturity. For investors heavily weighted in shares or property, bonds offer diversification into a lower-risk, income-producing asset. Pimco portfolio manager Robert Mead suggests investors view bonds as a defensive asset in a portfolio.
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