LSE gives private investors chance to trade in bonds: The London Stock Exchange’s new bonds trading service goes live, offering private investors the chance to buy corporate bonds and gilts in manageable quantities for the first time
In all, 21 private client brokers will offer the service, allowing retail punters the chance to buy bonds in packages as small as £1,000 a time. Three firms will make a market. Traditionally, bonds, which are corporate or government debt, have been bought by institutions over the counter in lots of £50,000 or more.
The LSE, amid much razzmatazz, will launch its new electronic retail bond trading service. At first the offer is limited to 49 gilts, or government bonds, and ten corporate bonds from blue-chip companies such as Tesco, BT, GlaxoSmithKline and National Grid.
Bonds are a form of debt offering a fixed rate of return, or coupon, which are redeemable and their face value repaid to the holder after a fixed period. Typically, a corporate bond might offer in excess of 5 per cent, as against the base rate of 0.5 per cent and rates not a great deal higher than that available from banks and other institutions to the retail lender. As a consequence, bonds have been among the best-performing investments over the past couple of years for those institutions holding them, and the LSE and the brokers taking part hope that retail investors will be keen to invest.
Research from APCIMS, the retail stockbrokers’ trade body, suggests that at present retail investors own £20 billion-worth of corporate bonds.
A spokesman for Killik & Co, the broker, said that there had been “huge interest” from investors for bonds over the past year. But interest in the new LSE market had been muted:
“I don’t think there’s been a huge uptick. I think there’s an educational process.”
Present at the LSE’s offices in Paternoster Square, will be Lord Myners, the City Minister, and Philip Hammond, the Shadow Chief Secretary to the Treasury.
There has been concern that the retail investor may be in danger of coming to the market too late and missing out on the gains made by institutions. If inflation, and therefore interest rates, start to rise, the attraction of bonds reduces.
An LSE spokesman countered:
“The market is for the long term. We’re not launching it because interest rates are low and we think private investors will get a quick buck from it.”
(c) The Times
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