MARKETS SPECTATOR: Bond beginnings

The stock exchange wants to become the major bond market in Australia and encourage the development of a local corporate bond market.

Bonds. Australian government bonds.

About $250 billion worth, and they will be trading on the ASX.

From May 21 individual investors will be able to buy and sell AAA-rated 22 Australian government bonds, 17 treasury bonds and five treasury index bonds linked to the CPI.

Each bond initially will be quoted as a gross price, capital plus accrued interest. They will have a face value of $100. Commonwealth Bank, JPMorgan and UBS will be market makers in the bonds.

“The exchange wants to offer diversity,” says Ken Chapman, head of debt capital markets at the ASX. The amount of ASX-quoted assets for retail investors in the interest rate category is now about $35 billion. After trading in Australian government bonds on the ASX begins, that number will increase to about $280 billion.  

The ASX which offers a range of products from derivatives to cash equities is trying to encourage Australians to diversify their investments. About half of Australia’s retirement savings are in stocks, according to OECD global pension statistics. The ASX also wants to develop a corporate bond market.

“During the GFC the bond market froze,” says Chapman. “With Australian government bonds trading on the exchange it may build a critical mass and create demand for corporate bonds and reduce the reliance for offshore funding.”

Australian government bonds have rallied since the collapse of Lehman Brothers in 2007. The bonds now yield about 3.5 per cent compared to about 5.5 per cent five years ago.

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