Shadow finance minister Andrew Robb says if the Coalition wins government, it will examine ways to stimulate the development of a retail corporate bond market, with many retail investors currently being denied the opportunity to buy corporate bonds.
The development of a retail corporate bond market has been very slow under the existing federal government, despite being supported by the securities regulator and market participants, Robb said in a speech to the University of Melbourne, Faculty of Business and Economics this week.
He quoted a recent OECD report that found Australian superannuation funds, with their 50 per cent average allocation to shares, were the highest in the world. In contrast, only 14 per cent of the super funds are allocated to bonds, far lower than Japan at 56 per cent, the Netherlands at 50 per cent, the UK at 35 per cent and the US at 27 per cent.
“This low proportion of superannuation investment is even more marked when it comes to self-managed super funds, where a meagre one per cent is invested in corporate bonds,” Robb said.
“Post-GFC, retail investors now have a greater interest in less volatile returns, safer regular income streams and more diversified investment portfolios. Corporate bonds provide investors with greater income and capital certainty than equity investments, as well as lower volatility of returns,” he said.
In March 2009, Tabcorp issued a five-year retail senior bond during the GFC, at a time when banks were only lending for three years. This was the first vanilla retail bond since Telecom Bonds in the 1980s and 1990s. However, since then, there have been less than five large listed issues.
“At this rate of primary issuance a deep and liquid market will never be developed,” Robb said.
The retail corporate bond market should be comparable with the equities market, so that it should be as quick and as simple to buy bonds.
“It makes no sense to have very simple access to one type of investment, equities, yet have almost no access to lower-risk corporate bonds,” he said.
“Retail corporate bonds would be a welcome addition to equities. Increased liquidity will also promote institutional investor participation . the benefits of promoting institutional participation will be increased retail investor confidence in the market, and increased issuer confidence in tapping funds.”
The ASX has said it will soon offer a platform for retail investors to trade government bonds.
