The NZ Exchange (NZX) has reported a rise in traded debt activity for February 2012 compared to the prior comparable period last year. There is a total 289 listed securities on the NZX and 108 of these are listed debt issues. These are mainly issues where listed companies have raised funds from investors and the company has chosen to have the debt listed in a tradable form on the NZX. This provides liquidity for investors and also requires them to adhere to the disclosure requirements of the NZX. The total value of listed debt on the NZX is around $16bn or about 8% of GDP and this compares to the total value of listed shares at around $57b.
But interestingly the activity level in debt securities seems to be rising and was up by $90m or 13% on a year on year basis and total debt trades were up by 16% to 3,337. Total share trades rose in terms of numbers, but were down slightly in terms of value (for the same period), by about 3%.
As yields for fixed interest securities have been falling it appears that investors are choosing to cash-in some of the gains and/or switch to other new debt issues. When yields are declining fixed income assets become more valuable and this capital improvement adds to the regular coupon that investors are paid for holding the instrument. Increased activity in debt securities may also point to investor expectation that yields are likely to rise over the coming 1-2 years (and hence make bonds worth somewhat less in capital terms), on the back of a stronger economy. This stance may be difficult to defend however as the RBNZ will later this week review the level of the OCR and it will probably remain unchanged on the back of continued sanguine comments about the economy and longer dated yields are unlikely to rise in the absence of a firmer OCR. The NZX will nonetheless welcome a pickup in bond trading activity as it assists its revenue line and potentially attracts new investors. This is crucial to the market’s success.
Graeme Thomas