Typically the bond market is something that institutional investors, sovereign funds, and the very wealthy tend to invest in. Take for instance Dolmen Securities ‘Bond of the week’ (which is CRH this week), when I enquired about minimum order sizes I was told it was €50,000.00 which is fine if you are a bank but the majority of private investors would not have that kind of money to put into a bond – or at least not at that price tag or it would affect their diversification. Dolmen are a great house btw, I like their analysis, and in general what they do. However, CRH are trying to raise a bond in a market where literally everybody is trying to raise funds or roll over debt.
The competition is high, the US Treasury and HM Treasury in the UK are leading the way, that’s before we even get into municipal bonds and corporates. So what can be done? The Treasury in the US have alwasy taken the view of encouraging Americans to buy Tnotes and Tbills, people feel the ‘owe it to themselves’ and the hugely successful treasurydirect.gov is a great site for the average American (you have to be a US citizen to use it).
Ask yourself – do you know anybody that owns an Irish Government bond? A recent auction cleared with 55% of the subscription being bought by Irish banks but where are the individuals? The reason most people on the street don’t own government debt is because of the entry prices and market availability of it. NTMA would do well to set up a system where poeple could buy in units of €1,000 or online share trading systems could perhaps get involved.
The fact is this – if everybody is trying to raise money at once then you need to be able to utilise as much available funding as possible and overlooking private individuals is a big error, if we are good enough to tax in order to provide the state with income then why are we not good enough to borrow from and at least let some income be earned by the same folks who are paying taxes?
I would feel that in time, buying bonds will be as easy as buying shares, and that the minimum investment sizes will drop right down, an efficient system doesn’t punish the issuer, nor the people who administer same. The question is not ‘if’ but ‘when’ – when will we see the bond market becoming more accessible to small investors? The prospects and safety in fixed income should be easily and freely available, why do we have online share trading, spread betting, and online gambling – all of which are considered much higher risk than bonds – and yet bonds are overlooked? Perhaps it’s time to make some changes around here.