Bond market needs to be simpler: NAB
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.
Frequently Asked Questions about this Article…
National Australia Bank believes that a simpler corporate bond market would boost Australia's financial system and align it with other developed economies. Simplifying the process would help diversify the local market and make it easier for retail investors to access corporate bonds.
National Australia Bank believes that a simpler and more liquid corporate bond market will boost Australia's financial system and align it with other developed economies. Simplifying the process of issuing bonds to retail investors can help diversify the local market and support Australian businesses and investors.
Retail investors find it challenging to buy corporate bonds due to their custodial nature, which makes them harder to purchase compared to equities. Additionally, stringent listing requirements and cultural attitudes towards holding fixed income products contribute to the market's lack of depth.
Currently, buying corporate bonds in Australia is more challenging than buying equities due to their custodial nature and stringent listing requirements on the ASX. This complexity makes bonds harder to buy, especially for retail investors.
The corporate bond market in Australia is less liquid compared to the equity market. While there are thousands of bonds, they are often not traded, unlike equities which have a smaller number of offerings but a large volume of trades.
In Australia, the equity market has a small number of discreet offerings but a large volume of trades. In contrast, the corporate bond market has thousands of bonds, many of which are not actively traded, highlighting a lack of depth in the market.
Legislation is being proposed to reduce regulatory burdens and barriers for issuing corporate bonds to retail investors. This includes allowing firms to issue bonds with a shorter offer-specific prospectus if they have released a base prospectus in the past three years.
Proposed legislation aims to reduce regulatory burdens and barriers for issuing corporate bonds to retail investors. This includes allowing firms to issue bonds with a shorter offer-specific prospectus if they have released a base prospectus in the past three years.
An expanded corporate bond market could provide more investment options for Australian investors, particularly as the ageing population looks for less risky investments. It would also capitalize on the trend towards fixed income products, offering a more balanced investment portfolio.
An expanded corporate bond market could provide everyday investors with more opportunities to invest in fixed income products, which are generally considered less risky. This is particularly appealing to an ageing population seeking stable investments for retirement.
The Australian Securities Exchange (ASX) lists a limited number of fixed-income corporate bonds, including corporate bonds, floating rate notes, convertible securities, and hybrid securities. However, stringent listing requirements have limited the depth of the corporate bond market.
The ASX plays a crucial role in listing corporate bonds, but stringent requirements have limited the number of bonds available. Recent moves to list federal government bonds on the ASX aim to increase retail investor access and interest in the corporate debt market.
Companies often prefer raising debt overseas due to the stringent requirements for listing on the ASX and the cultural attitudes towards buying and holding fixed income products to maturity, which limit the local market's depth.
Companies often prefer raising debt overseas due to the stringent requirements and cultural attitudes towards holding fixed income products to maturity in Australia. These factors contribute to the lack of depth in the local corporate bond market.
The listing of federal government bonds on the ASX has opened up access to the multibillion-dollar secondary market for government bonds, encouraging growth in retail interest in the corporate debt market and making it easier for retail investors to buy and sell securities.
As the population ages, there is a growing trend towards fixed income products, which are perceived as less risky. This shift in investment preference is driving interest in expanding the corporate bond market to meet the needs of those seeking stable retirement investments.
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