Australian Debt Securities and Corporate Bonds: How to add Australian Debt Securities and Corporate Bonds to a Portfolio

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The Australian Centre for Financial Studies (ACFS) has released the third in a series of reports about the corporate bond market in Australia prepared for National Australia Bank.

This is the third in a series of reports on the Australian debt securities and corporate bond market, prepared by the Australian Centre for Financial Studies (ACFS) for NAB.

The first report outlined key features of fixed income investments, examined the importance of corporate bonds as an asset class for investors, and discussed the reasons they should be considered as part of a diversified investment portfolio. In particular, as an investor ages, weighting investment portfolios more heavily towards fixed income investments (relative to equities) reduces the risk of suffering a major loss of value which cannot be reversed before retirement.

The second report analysed the different types of fixed income instruments available and the characteristics and risks associated with various classes of fixed income securities. A complexity spectrum was included to assist investors in understanding the technical expertise required in evaluating different types of fixed income securities. The report also highlighted the importance of understanding the ranking of various securities in the event of liquidation and that corporate bonds rank higher than equities should such an event transpire.

This third report turns to the important topic of accessing the fixed income market and the methods used to add debt securities and corporate bonds to an investment portfolio. We first consider the different methods by which companies issue fixed income securities. As explained in the next section, the manner by which debt securities are issued has an impact on the types of investors that are able to invest in those securities. We then look at the characteristics of the various secondary markets in which fixed income securities trade – through an exchange such as the Australian Securities Exchange (ASX) or through the over-the-counter (OTC) market.

Again, the manner in which the securities are initially issued determines the secondary market on which they can trade. The later sections identify the various direct and intermediated methods investors can use to access debt securities and corporate bonds. A summary of the costs and benefits associated with each of these methods is also provided. It should be noted that the optimal method of investing in corporate bonds is highly dependent on the individual characteristics of the investor. These characteristics include technical expertise, experience, total wealth and the time an investor can commit to the investment process.


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This is the third in a series of reports on the Australian debt securities and corporate bond market, prepared by the Australian Centre for Financial Studies (ACFS) for NAB.

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