Best way of buying corporate bonds?

[sphinx11]

absolute beginner here. I do occasional long term share purchases through e*trade and comsec.

Now I want to look into corporate bond market in Australia...
Rather than buying bond fund.. I want to invest directly in some bonds, especially big 4 banks. But I have no idea what is the most efficient/low cost way of buying them through what "online" platform/broker? It seems comsec/etrade don't have bond products.

As I heard, many of them require 500k minimal investment but some do allow 100k investment..
Is there a place that you can find all the corporate bond products (Australia)?

Many thanks.

 

[Bill M]

Hello sphinx11, you can start buy clicking on the following link for info:

http://www.asx.com.au/asx/markets/displayInterestRateSecurities.do

You won't find too many "Bank" corporate bonds in that lot though. The banks mostly issue hybrids and floating rate notes to the general public. You can find those on the link provided above by scrolling down.

You can buy floating rate notes and hybrids just like ordinary shares through your broker.

I don't know much about the 500K minimum bonds, way out of my league unfortunately, good luck.

 

[Bushman]

There is also the managed funds option - hard to get in and out of though.

Cheaper to get in - usually require $10/20k minimum.

 

[sphinx11]

thanks for all the replies.
I was just reading Alan Kholer's article on corporate bonds: http://www.egoli.com.au/epiServer/Templates/Public/Pages/StoryArticle.aspx?id=38619&epslanguage=en

"However there are alternatives that involve just a small amount of extra risk, if you are willing and/or able to invest in lumps of $500,000. One is subordinated bank debt with a buyback in 2012, currently paying 8–8.5%. In my view this is a better bet than bank shares yielding 9–10%, as long as you have half a million to invest (some will accept a minimum investment of $100,000 but not many)."

(the bankruptcy risk for Australia's big 4 banks are virtually zero due to government grantees)

So I was wondering where I can get these?

"More interesting perhaps are a number of US corporate bonds available on the local market (through fixed interest brokers). For example Wells Fargo bonds are selling at a yield of 7.26%, General Electric debt is yielding 10.3%, Goldman Sachs’ 2011 debt is yielding 10.47%. The problem with these investments is that the minimum is usually $500,000 and for most that would be a big chunk of their savings."

And these? Any simple online brokers in Australia?

"There are a large number of Australian corporate bond issues in the market, but there are only a few that are liquid or safe enough to be considered. For example, according to a fixed schedule from ABN-Amro, Telstra’s 2012 bonds (rated A) are currently yielding 5.8%, while the 2013 issue is yielding 6.27%. Tabcorp’s 2011 bonds were yielding just under 8% last week. Snowy Mountains 2013 paper is yielding 7.24%."

And I can't seem to find these mentioned on the ASX page posted above.... or in comsec/etrade.

As I said, I am a beginner and really confused on how to approach this whole thing without going through a financial advisor. Thanks

 

[wayneL]

If you're comfortable with hedging currency risk and capital risk, check out HYG and JNK (junk bond funds) on the US exchanges.

Both yielding circa 13% and have listed options.

 

[sphinx11]

thanks.
But regarding my last post about those Australian ones.... is the only way of acquiring them is through a financial planning/investment services (assuming with a fee)?

Personally, I think equity is going to be dead in the near term... and bond market will be much more profitable in the current crisis.

 

[mixedeconomist]

thanks.
But regarding my last post about those Australian ones.... is the only way of acquiring them is through a financial planning/investment services (assuming with a fee)?

Personally, I think equity is going to be dead in the near term... and bond market will be much more profitable in the current crisis.

Corporate bonds

Most retail investors buy corporate bonds through a public offer, where a company issues a prospectus and investors apply to the company directly. You can also buy and sell some corporate bonds on the Australian Securities Exchange (ASX).
By investing in a corporate bond, you are lending money to a business in return for interest payments. This is not the same as buying shares in a company. If you buy shares, you become a part owner of the business and may receive dividends.
The main risk of corporate bonds is that the company might not be able to pay the interest or repay the capital when it is due.
Be aware that factors such as the current interest rate and the bond rating will determine how much you will be able to sell your bonds for.
See ASIC's guide to investing in corporate bonds for more information.


https://www.moneysmart.gov.au/investing/investments-paying-interest/bonds

 

[Andrewatfiig]

Aside from the very limited number of listed issuers or indeed low liquidity ETF issues, you can also buy bonds direct.

A bond unlike a share CAN be split into smaller shapes (minimum $50 or 100k).

So there is a viable alternative and you can own bonds directly.

Message me if wou want further information.

 

[GregDea]

Aside from the very limited number of listed issuers or indeed low liquidity ETF issues, you can also buy bonds direct.

A bond unlike a share CAN be split into smaller shapes (minimum $50 or 100k).

So there is a viable alternative and you can own bonds directly.

Message me if wou want further information.

Would you mind providing a list of listed issuers of Australian corporate bonds?
Also, how might I purchase US corporate bonds from Australia?
Thanks
Greg Dea

 

[sydboy007]

I use FIIG securities. They have a reasonable selection of corporate bonds, ILBs, IABs. The buy / sell spread is ~ 1.5%. The good thing is they chop up 500K bond parcels into 50K ones making it much easier for the retail investor.

Went to one of their seminars last year and found them quite knowledgeable and helpful.

Also note most of the listed income securities don't provide anywhere near the same protection as a bond.

The accessibility of corporate debt in this country is nearly third world when compared to Europe and the USA. We really need to make it cheaper and easier to buy.

 

[ENP]

In New Zealand where I'm based the NZX market has bonds that you can purchase just like shares.

In governments, councils, companies, etc.

Check out my online brokers website for them.
https://www.asbsecurities.co.nz/rw/es/ASBSecurities/Announcements/DailyNZFixedInterest.pdf

 

[Dona Ferentes]

Wesfarmers and Telstra are looking to issue corporate bonds directly to the retail market. If they did so, it is likely a coupon rate of >5% may be offered.



WES wants legislative changes to allow companies with established institutional bond programs to rely on that documentation to sell bonds to mum and dad investors.

“The documentation requirements are essentially what hold us back in the [retail] market,” WES head of group finance said.

“If ... we could produce that more easily, that would be the ideal, and then you’d see a lot more corporate issuers being able to access the market.."

 

[galumay]

I have used FIIG in the past, no longer have any interest in investing in bonds, but I assume they still operate in the market.

My only advice would be to understand the fee structure and also how bonds work before investing, dont just look at the yield in isolation - can be a very expensive mistake!