Everyone agrees that the corporate bond market needs to be more accessible to retail investors and the Australian Corporate Bond Company earlier this year launched its XTB product which aimed exactly to do that.
XTB’s are units that can be bought and sold on the ASX offering investors returns from a single corporate bond. Previously many of these bonds were only available to wholesale clients investing directly and with $500k to invest. In the XTB structure, the bond is essentially held in a unit trust with investors buying parcels of that bond via units in the trust.
ACBC had previously launched two series of XTB’s over a range of fixed rate corporate bonds from well-known companies. This third series, launched this week, offers investors units in floating rate notes/bonds. FRN’s as they are termed in the market, adjust their interest payable each quarter as referenced by the Bank Bill Swap Rate or BBSW. They are ideally suited in a rising interest rate market as the rate of interest paid is reset each quarter at the then market rate. Fixed rate bonds pay the same interest rate for the life of the bond.
XTB’s have a low minimum investment at $100 (although some brokers may impose a $500 minimum) and give investors access to an asset class on the ASX previously only available in the opaque, over-the-counter wholesale market.
The six, newly launched, FRN’s are the first XTBs to be launched over bank bonds. The bonds have been issued by AMP, Bank of Queensland (two XTBs), NAB (two XTBs), and Suncorp-Metway. The indicative current yields of the new XTBs range between 2.96% and 3.32% as at 10 November 2015.
ACBC CEO and co-founder Richard Murphy said he was pleased to be broadening the range of corporate bond opportunities available to retail investors. “We are excited about the potential opportunities these new XTBs can bring. XTB Floaters are high quality, capital stable instruments that share many of the attributes of cash investments and the benefits of trading on the ASX,” he said.
Among other features, FRN’s pay coupons quarterly until maturity, which may appeal to investors looking for a regular cash flow. Bonds in general are very secure with the capital guaranteed by the issuer to be returned at maturity. They are tradeable at any time so investors may find the capital value of bonds move over the life of the bond although the FRN’s should, in theory, trade close to the face value.
XTB’s are quoted on the ASX and can be bought and sold through financial advisers or stockbrokers.