The Monetary Authority of Singapore (MAS) released on Monday a consultation paper which proposes changes to existing regulations making it easier for retail investors to get access to bond offerings. The move happens in conjunction with the Singapore Exchange (SGX) which released a consultation paper on a proposed bond seasoning framework.
Seasoned bonds are those which have been listed for at least six months. Under the proposed framework, retail investors will be able to purchase such bonds which are normally only available to institutional and accredited investors.
According to the MAS, it has observed growing retail interest in fixed income products such as plain vanilla corporate bonds. The risks of opening this market right now after the rally is several years old and is tied to the increased rate of corporate bonds issuance.
Normally corporates target big institutional and accredited investors. The MAS aims to introduce redenominated, smaller lot sizes offerings on seasoned bonds which have passed typical bond prospectus requirements.
For bonds which are issued by parties who satisfy specified thresholds that are higher than the eligibility criteria under the seasoning framework, the offering should be possible without a prospectus*.
According to the Managing Director of the MAS, Ravi Menon, “These proposals are part of MAS’ overall efforts to improve retail access to simple investment products that give decent returns without too much risk. Low global interest rates have spurred a search for Yield , sometimes in risky and unconventional schemes or concentrated investments in property.”
He concluded his statement saying, “At the same time, growing financial awareness has spurred demand for a broader range of retail investment products, including for retirement savings. We hope that retail investors will avail themselves of these new investment options.”
How Long Can Global Bond Markets Rally?
Probably longer than stocks…As the relentless rally in bonds all over the globe becomes attractive to the retail investor, the rising demand which prompts this move by the MAS is not raising eyebrows (for now.. or is it?).
Let us remind you that 10-year government bond rates around the world are the following:
Japan - 0.49%
Germany - 0.89%
France - 1.25%
Spain - 2.25%
USA - 2.34%
These long-term government bond rates are in turn influencing the corporate bond markets across the globe, which can lead to the underestimation of potential risks, especially in riskier bonds. That said, since we are in a protracted period of both bonds and stocks rising, one will have to budge sooner or later.
The likelihood of a government bond market bust is much less than a stock market correction, primarily due to the central bank's balance sheets protecting government interests and relentlessly buying their newly issued paper.
However, are central banks going to get into the corporate bonds market if that falters? This is going to be politically hard to push forward, so dear retail bond investors, do not get tempted by the alleged safety of corporate bonds, read those prospectuses carefully first!
*Bonds prospectus requirements include background information on the product, the precise number of bonds issued and the offering price in their final version. A preliminary document outlines details of the business and the transaction in question with red letters spelling out the "red herring" for the document, which means that it isn't final and complete.
