STOCKBROKERS should soon be selling Australian government bonds to retail investors.
Australian Securities Exchange boss Elmer Funke Kupper remains confident about an end-of-year timetable for the listing of billions of dollars worth of the top-shelf debt.
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 thrashed out and procedures finalised.
The listing of government bonds on the ASX will give retail investors direct access to the risk-free securities for the first time in nearly three decades. This means small investors will be able to buy and trade government securities without having to go through a managed fund.
The move has been promised for years but has failed to get off the ground because of the regulatory complexity.
The new arrangement is expected to provide a crucial boost to retail stockbrokers, who see the listing of government bonds as spurring the development of a deeper corporate bond market, as well as giving them a fresh revenue stream.
The initiative was given fresh momentum two years ago when the Johnson report into developing Australia's financial markets recommended that government debt should again be traded among retail investors.
"The main streams of work are focused on rules and regulatory amendments, internal operational procedures and external market readiness," an ASX spokesman said yesterday.
This included talks with stockbrokers and the Office of Financial Management about the potential distribution of the bonds.
The Australian Securities and Investments Commission, the securities regulator, has also been involved.
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 one of just eight countries comfortably sitting within a "AAA" credit rating from two agencies. This has prompted big global investors to rush the low-risk debt amid overseas market volatility, which has driven the yield on long-term bonds to levels only fractionally above the rate of inflation.
Australian investors' large exposure to shares and property has been cited by a range of superannuation experts, including Jeremy Cooper, architect of the government's super reforms, as leaving Australians financially too exposed to market downturns.
The $7 billion-plus in hybrid shares sold by big name companies in recent months suggests there is clear demand for listed debt from retail investors.
Next financial year, the Office of Financial Management is expected to sell about $35 billion in bonds, with some of this likely to be earmarked for retail investors. Of this, $26 billion will cover maturing bonds.
But the level of bond sales is expected to recede in coming years as the government moves back to a balanced budget.
Frequently Asked Questions about this Article…
What does the planned ASX listing of Australian government bonds mean for retail investors?
The ASX is preparing to list Commonwealth government bonds so retail investors can buy and trade them directly through stockbrokers for the first time in nearly three decades, giving everyday investors access to low-risk, government-backed securities without going through a managed fund.
How will retail investors be able to buy government bonds on the ASX?
Once the listing is finalised, retail investors should be able to purchase government bonds via stockbrokers on the ASX, trading the securities like other listed products – a change that removes the need to access these bonds only through managed funds.
When might Australian government bonds be listed for retail trading on the ASX?
ASX chief Elmer Funke Kupper has expressed confidence in an end-of-year timetable as negotiations reach final stages, though the exact timing depends on completing rule changes, operational procedures and regulatory approvals.
Why is listing government bonds on the ASX important for everyday investors and portfolio diversification?
Listing bonds provides retail investors direct access to risk-free government debt, which can help diversify portfolios that are heavily weighted to shares and property and reduce exposure to market downturns, as highlighted by superannuation experts referenced in the article.
Who is involved in making government bonds available to retail investors and what are their roles?
The Australian Securities Exchange (ASX) is leading the listing process, the Australian Office of Financial Management (AOFM) is the government funding arm that will sell the bonds, and the Australian Securities and Investments Commission (ASIC) is involved on the regulatory oversight side.
How much government debt might be made available to retail investors and what is the scale of AOFM bond sales?
Next financial year the AOFM is expected to sell about $35 billion in bonds, with some of that earmarked for retail investors; of that amount around $26 billion will cover maturing bonds, according to the article.
Will government bonds listed on the ASX be a low-risk, high-yield option for retail investors?
Australian government bonds are considered low-risk—Australia holds a 'AAA' credit rating from two agencies—but yields on long-term bonds have been driven down by global demand and are only fractionally above inflation, so returns are generally modest compared with higher-risk assets.
Why has it taken years for government bonds to be offered to retail investors and what changed recently?
Previous attempts stalled because of regulatory complexity, but the Johnson report recommending retail trading of government debt and recent final-stage negotiations on rules, operational procedures and market readiness have given the initiative fresh momentum.
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