Bond market needs to be simpler: NAB

National Australia Bank has called for a deeper and more liquid corporate bond market to boost Australia's financial system and bring it in line with other developed economies.
By · 4 Nov 2013
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4 Nov 2013
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National Australia Bank has called for a deeper and more liquid corporate bond market to boost Australia's financial system and bring it in line with other developed economies.

The bank, which has commissioned a series of Australian Centre for Financial Studies reports on corporate debt, said education and legislation to simplify the process of issuing bonds to retail investors would go a long way to help diversify the local market.

"It is significantly easier to be able to buy, even online now, equities. Whereas bonds, because of their custodial nature, are somewhat harder to buy," said NAB head of debt markets Steve Lambert.

"For us to continue to help Australian businesses and investors, the broader financial market needs to evolve. One of the key elements is the development of a corporate bond market."

The bank released the third report on the corporate debt market on Monday, in which the various ways in which investors can access debt securities and corporate bonds are explored.

The report also highlighted the limitations of the current market. For example, while the value of long-term non-government debt securities exceeds $450 billion, according to Reserve Bank estimates, less than 5 per cent are listed.

As of June 29, there were fewer than 70 fixed-income corporate bonds listed on the Australian Securities Exchange. These included four listed corporate bonds, 24 floating rate notes, seven convertible securities and 32 hybrid securities.

The stringent requirements for listing on the ASX, as well as cultural attitudes towards buying and holding fixed income products to maturity, were contributing factors to the lack of depth in the corporate bond market, the report said. The restrictions have also meant that companies favour raising debt overseas.

"At the end of the day, the number of discreet equity offerings is a small number, but there is a large volume traded. It's the complete opposite with bonds," Mr Lambert said. "There's thousands of bonds, which are often not traded."

Mr Lambert said he was looking forward to legislation to simplify corporate bonds issuance passing through the Senate. The legislation, which reduces the regulatory burdens and barriers to issuing corporate bonds to retail investors, was passed by the House of Representatives in May.

When it is passed through the Senate, firms would be able to issue bonds by releasing a shorter offer-specific prospectus, as long as they have released a base prospectus in the past three years.

In May, federal government bonds were listed on the ASX, allowing retail investors to buy and sell securities on the open market. The move was meant to open up access to the multibillion-dollar secondary market for government bonds, and encourage growth in retail interest in the corporate debt market.

Mr Lambert said an expanded corporate bond market would also capitalise on a trend towards fixed income products as the ageing population searches for less risky investments. Retirement savings funds in Australia have traditionally given a higher weighting towards growth assets, compared with other countries.
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