Bonds key to evolution of market: 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," NAB's head of debt markets Steve Lambert told Fairfax Media.
"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 discrete 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, of which they are often not traded."
Mr Lambert said he was looking forward to legislation to simplify corporate bonds issuance pass 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, Commonwealth 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.
Frequently Asked Questions about this Article…
National Australia Bank believes that a more liquid corporate bond market is essential for boosting Australia's financial system and aligning it with other developed economies. They see it as a key element in helping Australian businesses and investors thrive.
National Australia Bank believes that a deeper and more liquid corporate bond market will strengthen Australia's financial system and align it with other developed economies. This evolution is seen as essential for supporting Australian businesses and investors.
Retail investors find it harder to buy corporate bonds compared to equities due to the custodial nature of bonds and stringent listing requirements on the ASX. This complexity limits their accessibility and appeal to everyday investors.
Retail investors find it harder to buy corporate bonds compared to equities due to the custodial nature of bonds and the complex process involved. Simplifying the issuance process and improving education could help overcome these challenges.
The corporate bond market in Australia is less developed compared to the equity market. While there are thousands of bonds, they are often not traded, unlike equities which have fewer offerings but a large volume of trades.
The corporate bond market in Australia is less developed 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.
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.
Legislation is being proposed to simplify the issuance of corporate bonds by reducing regulatory burdens. 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.
Listing Commonwealth government bonds on the ASX allows retail investors to buy and sell these securities on the open market, potentially increasing retail interest and participation in the corporate debt market.
Listing Commonwealth government bonds on the ASX is intended to open up access to the secondary market for government bonds, encouraging retail interest and potentially spurring growth in the corporate debt market.
The current market is limited by stringent ASX listing requirements and cultural attitudes towards holding fixed-income products to maturity. These factors contribute to a lack of depth and encourage companies to raise debt overseas.
Companies often prefer raising debt overseas due to the stringent requirements for listing on the ASX and cultural attitudes towards holding fixed-income products to maturity, which limit the depth of the local corporate bond market.
The non-government debt securities market in Australia is substantial, with a value exceeding $450 billion. However, less than 5% of these securities are listed, highlighting a gap in market accessibility and liquidity.
As of June 29, there were fewer than 70 fixed-income corporate bonds listed on the Australian Securities Exchange, including a mix of corporate bonds, floating rate notes, convertible securities, and hybrid securities.
Education is crucial in simplifying the process of issuing bonds to retail investors. By increasing understanding and awareness, it can help diversify the local market and make corporate bonds more accessible to everyday investors.
Education can play a crucial role in simplifying the process of issuing bonds to retail investors, helping them understand the benefits and risks associated with corporate bonds, and ultimately diversifying the local market.
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