Trading of corporate bonds

[scahyadi]

Hi everyone,

I'm just wondering if the exchange based trading of corporate bonds has improved price discovery in the secondary market for the corporate bonds?

if yes, how it has been improved?

Thanks,

 

[dsetiono]

hi! this sounds like my finance assignment
are u studying at Uni of Melbourne?

 

[Dona Ferentes]

I'm just wondering if the exchange based trading of corporate bonds has improved price discovery in the secondary market for the corporate bonds?

if yes, how it has been improved?

Sorry for taking so long in getting back to you. The short answer is; No, not really.

In what can only seem like yet another example of "seemed like a good idea at the time", a bunch of players created and promoted some pretty dubious products that may well have delivered fat fee flows to their shops, but merely introduced pain to those beguiled enough to buy in. One commentator has written of this folly, recently. Note that this allocation was meant to be in the defensive part of a portfolio, where it should be about return of capital, not return on capital. And being ASX listed is no guarantee of liquidity.

The author wrote:
"I also held some long-term bond positions, such as in listed bonds, Australian Unity’s ASX:AYUPA paying 5% pa, ECP Fund’s ASX:ECPGA at 5.5% pa and Mercantile’s ASX:MVTHA at 4.8% pa. At the beginning of 2022, selling these would have reduced cash flow from over 5% to around zero, and (like everyone else including the Reserve Bank Governor), I did not expect rates to rise quickly. I decided to take the ongoing income which was likely to be better than cash, notwithstanding the greater (but I judged acceptable for the reward) credit risk.

"These three listed securities are now ‘trading’ at about $88, no bid and $94. Not the end of the world but large capital losses on the defensive part of my portfolio were not part of the plan. Liquidity in these small, corporate bond issues is poor despite public listing. Spreads were wide and I sat on the offer for many weeks to reduce these bond positions at a decent price."

..... am not sure anything less than $100 is "decent".

 

[rcw1]

Sorry for taking so long in getting back to you. The short answer is; No, not really.

In what can only seem like yet another example of "seemed like a good idea at the time", a bunch of players created and promoted some pretty dubious products that may well have delivered fat fee flows to their shops, but merely introduced pain to those beguiled enough to buy in. One commentator has written of this folly, recently. Note that this allocation was meant to be in the defensive part of a portfolio, where it should be about return of capital, not return on capital. And being ASX listed is no guarantee of liquidity.

The author wrote:
"I also held some long-term bond positions, such as in listed bonds, Australian Unity’s ASX:AYUPA paying 5% pa, ECP Fund’s ASX:ECPGA at 5.5% pa and Mercantile’s ASX:MVTHA at 4.8% pa. At the beginning of 2022, selling these would have reduced cash flow from over 5% to around zero, and (like everyone else including the Reserve Bank Governor), I did not expect rates to rise quickly. I decided to take the ongoing income which was likely to be better than cash, notwithstanding the greater (but I judged acceptable for the reward) credit risk.

"These three listed securities are now ‘trading’ at about $88, no bid and $94. Not the end of the world but large capital losses on the defensive part of my portfolio were not part of the plan. Liquidity in these small, corporate bond issues is poor despite public listing. Spreads were wide and I sat on the offer for many weeks to reduce these bond positions at a decent price."

are you bored Dona Ferentes??
Kind regards
rcw1

 

[Belli]

If you look at this and go to Fixed Income - Australian Dollar

ETPs

Exchange-traded products (ETPs) on ASX offer access to a sizeable market providing variety and choice across over 200 funds.

www2.asx.com.au

you'd have to ask Why would you?

 

[divs4ever]

are you bored Dona Ferentes??
Kind regards
rcw1

actually a timely response for the members in general

i have seen recent 'chatter ' on corporate debt on various sites for example Firstlinks ( com.au )

now apart from a small holding of CAMG currently ( and some LICs which hold some corporate debt in a 'balanced portfolio ' )

i do NOT find these products ( well the ones i have noticed ) attractive

that view differs greatly from my activities between 2011 and 2016 ( before i joined ASF ) where at times corporate of various types was more than 10% of the portfolio .

but 2011 to 2016 , coupon returns when much juicier back then and also (IMO ) a better range of corporate offerings

REMEMBER this is all about risk V. reward , and apart from the regularity of coupon payments ( if they can ) i don't see the attraction ( unless being directly compared to bank term deposits , HOWEVER in a scenario of rising interest rates and potentially drying up of institutional capital ( to say the fossil fuel industry ) that may change , maybe even this year

if investing in this area , PLEASE PLEASE, PLEASE research very carefully AND seek professional financial advice if you have some nagging questions ...

cheers

 

[divs4ever]

If you look at this and go to Fixed Income - Australian Dollar

ETPs

Exchange-traded products (ETPs) on ASX offer access to a sizeable market providing variety and choice across over 200 funds.

www2.asx.com.au

you'd have to ask Why would you?

i avoid the ETF/ETP packages , because they bundle up various offerings under the guise of 'diversity equals security ' ( very much like the famed CDOs in the GFC )

i prefer to know EXACTLY who and at what terms , i am lending money to , not a grab-bag someone else has researched (?? ) for me

ALSO by buying them individually you can sometimes get a discount to face value ( after brokerage ) , in tumultuous times

currently ? , not for me .. but in six months , things may have changed significantly

cheers

 

[Belli]

If you look at this and go to Fixed Income - Australian Dollar

ETPs

Exchange-traded products (ETPs) on ASX offer access to a sizeable market providing variety and choice across over 200 funds.

www2.asx.com.au

you'd have to ask Why would you?

Out of curiosity I had a look at VDHG. I believe it may have undertaken a rebalance. Its allocations are now:

Vanguard Global Aggregate Bond Hedged - 35.09%
Australian Shares - 20.05%
Australian Fixed Interest - 14.91%
International Shares - 14.46%
International Shares Hedged - 8.88%
International Small Companies - 3.57%
Emerging Markets - 3.00%

As far as I know, Vanguard does not inform unit holders of such changes which I think means holders need to monitor it to determine if it still fits which, to me, is contrary to the concept of set and forget index investing. Then maybe it isn't given the nature of the product. However, 50% in cash products isn't for me.

PS: there are a couple of posts rabbiting on about lending money to ETFs, bundling products along with various tangential and irrelevant matters, etc. which make absolutely no sense whatsoever.

 

[divs4ever]

As far as I know, Vanguard does not inform unit holders of such changes which I think means holders need to monitor it to determine if it still fits which, to me, is contrary to the concept of set and forget index investing. Then maybe it isn't given the nature of the product. However, 50% in cash products isn't for me.

yes i would agree , although IF interest rates keep rising , temporary holdings in cash products MAY have periods of appeal