Government bonds to go retail

STOCKBROKERS should soon be selling Australian government bonds to retail investors.

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.

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