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Where's the research?

Friday 13th of February 2009
The flood of retail money into corporate bonds at the moment has a whiff of the type of investor behaviour we saw over finance companies. With interest rates at very low levels and bank term deposits barely providing a positive return after tax and inflation, it is no wonder that investors will be attracted to anything starting with a seven and if it starts with an eight it’s like a bright light. Likewise, banks aren’t showing a lot of appetite for lending so corporates are being forced to the bond market, with much of the money raised being used to pay down debt. I’m not sure how much of the money being invested in these bonds is going through financial advisers, but I suspect a fair bit is going through broking firms. Indeed one made a comment that if it wasn’t for Fonterra they would be making a loss this quarter. The corporate bond rush has highlighted a point which has been bugging me for some time about the savings industry, that is the lack of research available to investors. I’m not sure how much is floating around on these offers and it seems very little makes its way into the public domain for the retail investors. Therefore these offers are being bought on rate, just like finance companies were, and brand name. There seems to be little regard to things like balance sheets, credit ratings, economic risks and the like, therefore little consideration of whether the return being offered was commensurate with the risk. I’d have to make it clear here that I’m not saying these companies are dodgy, or high risk, like some of the finance companies, indeed the companies known to be in the bond market are reputable organisations. But there is a wide divergence in their qualities, which doesn’t seem to show through in the rates on offer. I guess one thing the bond offers are doing is taking potential interest away from shares and property. A view expressed here, was that with interest rates down people would start looking to growth assets. Judging by comments from the real estate sector and a look at volume figures on the exchange, that hasn’t happened – yet.
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