This segment of the market is no longer reserved for institutions and the wealthy

Alphabet’s recent $5.5 billion Kangaroo bond – the largest corporate issue ever in Australia – threw the spotlight on opportunities for advisers to invest in direct bonds on behalf of clients that did not exist previously.

The growing number of issuers in the local market, stronger liquidity and easier access mean direct bonds more often sit alongside shares and exchange traded funds (ETFs) as a mainstream portfolio-building tool, according to Martin Smith from the AUSIEX fixed income desk.

“Australian issuance is up approximately 40% year-on-year and we expect this momentum to continue driven largely by attractive yields and strong credit quality of issuers,” says Smith. 

Below are Smith’s answers to common questions from advisers as the result of Australia’s leap to the third largest corporate bond market in the world.

What is driving the boom in the Australian corporate bond market?

The market has picked up due to increased activity from issuers (both domestic and international), and a corresponding increase in demand from investors ranging from superannuation funds to dealer groups and individuals.

Investors are drawn by the strong credit quality and attractive yields offered by issuers. Additionally, some are looking for alternative income-producing assets as bank hybrid securities are phased out.

What are the biggest new issues so far in 2026 – and what’s to come?

Alphabet’s $5.5 billion Australian debut in August is the standout, attracting more than $18 billion in demand across 3, 5, 10 and 20-year maturities. But other large transactions include $2.5 billion issues from National Australia Bank and CIBC, while US telecommunications giant Verizon raised A$1.3b in subordinated bonds offering yields of around 6.7% to 7.2%.

Major domestic banks have been active in issuance with high demand, so I’d expect that to continue. The high demand for Alphabet’s issuance may lead to other US technology companies to follow suit by issuing bonds in the Australian market.

It is likely to reinforce the idea that the Australian market is a credible funding market for other international issuers too.

How can advisers tap into the corporate bond market for clients?

Advisers can bid into new bond issues for their eligible clients and buy bonds in the secondary market (which is much larger than the primary market) through our fixed income desk.

The minimum bond investment with AUSIEX is $10,000 which allows us to make fixed income available to a larger range of investors. It compares to the typical market minimum size of $500,000 and also allows advisers to build diversified, tailored fixed income portfolios for clients.

We have access to over 600 bonds which advisers can access through our website, or they can speak to their AUSIEX representative.

What are the advantages of direct bonds relative to pooled investments like ETFs?

Direct bonds and ETFs each have features that will appeal to different investors, and we see many advisers use a combination of the two vehicles. They can be complementary building blocks for a fixed income allocation.

With direct bonds, advisers have more control over an investment – in terms of the issuer, interest rate exposure, cash flows and maturity. A key advantage of direct bonds is that a ‘fixed rate’ can be locked in, which suits many investors’ needs. 

This differs to ETFs which are made up of several underlying securities: the ETF yield will be variable as the underlying securities mature and others are added.

How should advisers explain direct corporate bonds and their benefits to clients?

There are a couple of key factors for advisers to explain to clients – firstly portfolio diversification, and secondly, income.

For portfolio construction, they are defensive building blocks that sit between cash and equities, providing predictable income, diversification and greater certainty around cash flows. For clients seeking income predictability with relatively low capital risk, direct bonds allow them to lock in today’s attractive investment-grade yields for a defined period, rather than wondering what cash or term-deposit rates may be in a year or two.

What is the role of duration for bonds, and its relation to interest rates?

Duration is a measurement of a bond’s sensitivity to interest rates – how much its price/value changes when rates change. All else being equal, this sensitivity is larger when a bond is fixed (vs floating) and when bonds are longer dated.

With a floating rate note, bond coupons are periodically reset based on changes in the underlying reference rate. Put simply, coupons received will vary over time with changes in the market. These securities can suit investors who are happy to receive coupons at the market rate, and don’t want to take an active view on future interest rate movements.

This differs to fixed rate bonds – where the coupons received remain the same, irrespective of interest rate levels in the market. Some clients prefer fixed rate bonds as they can ‘lock in’ their level of yield for a certain period, and not worry about rates.

Q: What is a bond’s yield and how is it measured?

There are a few measures for it, including ‘yield’ and ‘yield to maturity’.

Yield can be thought of as the income rate an investor receives from a bond’s coupon payments.

Yield to maturity, on the other hand, provides investors with the overall yield they will receive if a bond is held to maturity. This considers the current market price of the bond – for example, if it is trading at a premium or a discount to its issue price.

 

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