Australian Debt Securities and Corporate Bonds: Improving access to the corporate bond market for retail investors

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The Australian Centre for Financial Studies has released its latest report on Australian Debt Securities and Corporate Bonds: Improving access to the Corporate Bond Markets for retail investor. This is the fifth in a series of independent research reports commissioned by NAB, examining the development of debt securities and the corporate bond market in Australia.

Following the release of the report on 29th June, co-written by Professor Kevin Davis and Martin Jenkinson, formerly ACFS Research Officer, Professor Davis said that “all the ingredients are coming together for strong growth of the retail corporate bond market”.

Professor Kevin Davis identifies important factors such as recent legislative changes, the low interest rate environment, technology changes facilitating new investment vehicles, and increasing retail investor interest (particularly by SMSFs), as reasons for increasing interest in the domestic bond market, which has historically been dominated by institutional investors.

In its findings, the report acknowledges that the domestic corporate bond market is small, and has been largely limited to large highly rated companies – who also issue into overseas debt markets. But one recent development has been the growth of domestic bond issues by unrated smaller Australian corporates.

Retail investors have also had little direct involvement in corporate bonds, except indirectly via investments in fixed interest mutual funds which generally also invest in a wide range of other debt securities. These debt instruments are not well understood by retail investors relative to more popular investment choices (particularly for SMSFs) like shares and property.

With a current low interest rate environment conducive to corporate debt issuance, and investors seeking higher yields than available from bank deposits, corporate bonds are right in the mix to meet those needs. Given the ageing population the demand for stable income streams is growing. Emerging opportunities for improved retail investor access include the development of an ASX platform (integrating the retail and wholesale markets – as has occurred for government bonds), listing of Bond ETFs and XTBs, while the mFunds platform also facilitates investors in accessing unlisted mutual funds investing in corporate bonds.

The report also highlights that bond market development has been aided by significant legislative changes, such as the Simple Corporate Bonds and Other Measures Act being passed in September 2014. The Financial System (Murray) Inquiry also urged for further measures to support further bond market development.

In a webcast supporting the launch of the new report, Professor Kevin Davis reinforced that while there were merits of having corporate bonds in retail investors’ portfolios, there is a vital need for diversification and good advice in selecting appropriate securities.

The webcast event was hosted by NAB and is titled Is the Australian Corporate Bond market the adolescent of financial markets or just misunderstood? The panel included Professor Kevin Davis, Steve Lambert, Executive General Manager of Capital Financing at NAB and Mark Todd, Director of Fixed Income at NAB as moderator.

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Download the report


Media contact details:

Professor Kevin Davis
Director of Research, Australian Centre for Financial Studies
T: +61 3 9666 1050
E: kevin.davis@australiancentre.com.au
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This is the fifth 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.