XTBs expand, boost access to corporate bonds


By Elizabeth Somerville

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The Australian Corporate Bond Company (ACBC) has released its second tranche of exchange-traded bonds (XTB), with a third and fourth tranche of bonds scheduled to be rolled out in the coming weeks.

An additional six products were made available yesterday, bringing the total number of XTBs on offer in the Australian market to 23.

The new XTBs include senior bond coverage of three Qantas bonds, and one each from APA Group, Caltex and Mirvac.

“In this second release of XTBs, some of the corporate bonds, such as Qantas, offer a higher yield than the first tranche, which broadens the risk profile of underlying bond issuers on offer and therefore the range of yields XTBs can offer,” ACBC chief executive and co-founder Richard Murphy said.

XTBs were first launched in the Australian market in May and offer investors simple ASX-traded fixed income securities as each XTB provides access to the returns of an individual underlying senior corporate bond, with a low minimum investment amount.

Murphy said he expected the broadening of the XTB range to resonate with investors who were seeking predictable income returns without sacrificing capital stability in a low-yield environment.

“XTBs are an easy way for investors to protect their investment portfolio by accessing fixed income diversification,” he said.

“Exposure to the senior corporate bond market provides regular, predictable income as well as capital stability.”

Meanwhile, as XTBs were generally negatively correlated to equities and hybrids, they did not usually decline in capital value when equity markets fell, as opposed to shares and hybrids, which generally did, he said.

Further, their yields usually sat between the yields available on term deposits and the income available on hybrids, but unlike their underlying senior bonds, XTB capital values were not as volatile as hybrid securities so were more suited to the defensive part of an investor’s portfolio, he added.

He said aside from capital stability, the transparency and liquidity of the ASX and the ease of holdings and administration also made the products attractive to investors.

“While it’s still early days for XTBs, we’ve been very encouraged by the positive feedback we’ve been getting from advisers and investors to date,” he said.

“Going forward we remain focused on continuing to educate investors or the benefits of gaining exposure to corporate bonds and rolling out new tranches of XTBs.”

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