PrimaryBid, which is backed by the London Stock Exchange, and is best known for making equity IPOs and placings accessible to UK retail investors, has turned its attention to the world of bonds.
Another area of the financial markets in which UK retail clients find it hard to participate, both in the primary, and indeed secondary markets. We covered this before in our Q&A on where to buy bonds pre-market.
Why is PrimaryBid offering bonds?
To date, retail investors have largely been excluded from new issues in the Bond market.
The issuance process is opaque; one could even say secretive.
And the syndicates of banks that manage bond issues have little interest in retail business, working as they do within the wholesale international capital markets.
PrimaryBid wants open up the primary bond markets to individual investors, to provide savers with access to a wider variety of fixed income assets and bond issuers with access to a largely untapped marketplace of retail savers and investors.
PrimaryBid will make the access to new bond issues free of charge to retail clients.
Why buy bonds through PrimaryBid?
Bond new issues can happen very quickly, often with little notice and such deals can often be denominated in foreign currencies and sized in tranches that are beyond most retail investors’ means.
For example, it’s not uncommon for sterling-denominated bonds to be issued in minimum clips of £100,000 nominal.
PrimaryBid will act as an intermediary between bond issuers and retail investors with the aim of overcoming these issues and democratizing access to the market.
Why buy a bond at an IPO rather than in the main market?
Buying a bond in an IPO means that you purchase the bond at the issue price and yield, something that can vary dramatically in the secondary market, in the same way that the price of an equity can.
Once the coupon of bond is fixed and it is issued, then it’s the price and the length of time to its maturity that determines its returns. The better the price you can access the bond at then the better yield should be for the investor.
That’s not to say that bonds can’t fall in value or trade below their issue price because they can.
However, it tends to be the case that if a bond can’t be issued at a price/yield that’s acceptable to all parties then the issue is usually pulled.
What do you need to buy bonds through PrimaryBid?
You will need a PrimaryBid account which you can apply for and open by downloading their app.
You will also need a bond broker that can accept or take custody of any bonds that you successfully subscribe for.
And of course, most importantly you will need the money to pay for those bonds, which will need to be in your PrimaryBid account when you apply for a new issue.
PrmaryBid’s move into bond new issues is an interesting initiative and it coincides with efforts by Lord Moylan to open up the UKs bond markets.
Lord Moylan voiced the issue in the House of Lords this week saying that when he had worked in the bond market:
“Most issuances could be accessed for a minimum investment around £1,000 and this allowed the private investor to become the backbone of the UK’s bond market.”
However, he added that
“A process of ‘de-democratisation’ over the last 10-15 years had cut out the retail investor and (this) now needed to be addressed”
And that may be the issue, because unless issuers and their advisors can be persuaded to make bond issues retail investor-friendly once more, then PrimaryBid may find it has very little to offer to retail investors.