Bloomberg News

Australia to Spur Government Bond Trading by Individuals

December 13, 2011

(Updates with market operators in fifth paragraph.)

Dec. 13 (Bloomberg) -- The Australian government plans to make it easier for individual investors to trade the nation’s sovereign debt by the end of next year as part of efforts to develop its corporate bond market.

The government is in talks with market operators to set up a platform for the trading, Treasurer Wayne Swan said in an e- mailed statement.

Helping individual investors buy and sell sovereign bonds will provide a pricing benchmark for corporate sales and spur more interest in debt markets, Swan said before a meeting today with investors, bond issuers and regulators. “I am hopeful that, with favorable market conditions, trading will commence by the end of 2012,” he said.

Australia’s government securities returned 13.7 percent this year, trailing only the U.K. among developed markets, as Europe’s debt crisis spurs investors to seek assets in a nation that holds AAA ratings from all three main assessors, Bloomberg/EFFAS indexes show. The nation’s corporate bond market remains an area of “relative weakness” as its development lags behind Europe, the U.S. and New Zealand, leaving companies reliant on offshore bond sales or bank loans and vulnerable in a credit crunch, according to a government discussion paper released today.

The government will let multiple operators set up sovereign bond-trading platforms, Swan said in a separate statement.

The Australian Securities & Investments Commission changed prospectus rules for so-called vanilla bond sales targeted at individual investors in May last year, as part of a push to develop debt markets. Only one issuer has taken advantage of the changes to sell notes, according to the discussion paper.

Syndicated Loans

Syndicated loans provided by banks to Australian and New Zealand companies total A$116.1 billion ($116.9 billion) this year, up 66 percent from the same period in 2010 and the most since 2007, according to data compiled by Bloomberg. Non- financial corporate bond sales in Australia in 2011 total A$8.1 billion, the data show.

The government is seeking feedback on how to make it more attractive for companies to sell bonds locally, with proposals including reducing disclosure rules and reviewing some director liability requirements, Swan said.

Still, the changes aren’t likely to spur a rash of sales, as “commercial realities” deter both issuers and investors, he said.

“Issuers seem to be able to get access to cheaper funds from other sources, particularly our banks,” Swan said. “Investors do not seem attracted by the pricing of bonds, relative to returns they get on other investment classes, particularly equity. I am not sure how this commercial gap can be bridged.”

--Editors: Garfield Reynolds, Jonathan Annells

To contact the reporter on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net


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