Wednesday, November 21, 2012

You'll no longer be able to rely on government bonds - Robb

The Coalition will ask investors to prepare for a world with far fewer government bonds in an address in Melbourne Wednesday, saying as it acts on its promise to cut net government debt to zero there will be a “commensurate reduction in the issuance of government bonds”.

In their place it will commit itself to develop a retail market in corporate bonds to rival the share market, saying it makes “no sense” for investors to have easy access to equity yet almost none to lower-risk corporate bonds.

“In March 2009 Tabcorp issued a 5 year retail senior bond - the first vanilla retail bond since Telecom Bonds in the 1980s and 1990s,” finance spokesman Andrew Robb will tell the Melbourne University economics faculty.

“Since then there have been less than five large, quality issues. At this rate a deep and liquid market will never be developed.”

Mr Robb will quote NAB wholesale banking executive Rick Sawers as saying: “If I arrived from outer space this morning I could probably buy shares online by 5pm today, but it is much more difficult to buy a bond.”

“The Coalition understands that until there is a comparable market, government has not fulfilled its role and once there is, government should allow the market to function,” Mr Robb will say.

“In dollar terms, Commonwealth government securities were our second biggest export in 2011-12 at $58 billion."

“Our determination to start paying off Commonwealth net debt will of course see a commensurate reduction in the issuance of government bonds"...

Australia’s banks should be particularly keen to buy corporate bonds as the supply of government bonds winds down and they are forced to comply with Basel III liquidity regulations. Overseas bonds are expensive.

In today's Sydney Morning Herald and Age

Related Posts

. "There's an alternative to borrowing" - Robb

. Wednesday Column: Debt free. Got any other ideas to stifle growth?

. Unpalatable as it is, we need a bond market


Anonymous said...

so what is he gong to do about our Basel 111 obligations?

Ratee said...

So Buffon No2 wants the banks to replace their government bonds?
Where are these "low risk" corporates??
James Hardy??, ABC Learning.
B1 and B2 are not just shallow but dangerous to the economy and society.
Their vision of Australia having Hong Kong like welfare and US style finance is a recipe for disaster

James Benjamin said...

I thought the coalition were meant to be the financially savvy of the two equally repulsive political parties we have to choose from to make our collective decisions for us. This proposal is so full of it I just don't know where to start other than to say, it will never happen. To think it will actually happen is political naivety in the extreme. To suggest it is not only naive or disingenuous (possibly both) but also reckless and totally misinformed about the nature of our capital markets.

Anonymous said...

A couple of points.

This implies very tight fiscal policy.

I am not sure the RBA would be thinking it desirable given the imlpications for the cash rate.

with the $A over-valued and not looking to come down at any time we would have a double whammy.

Finally Costello was told quite firmly by market particiapnts we need a government bond market. Pricing corparte bonds off swaps is not desirable.

they are well and truly blockheads.

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