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

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. Unpalatable as it is, we need a bond market