Corporate bonds are coming back into fashion as rising interest rates and uncertain economic conditions push companies to find alternatives to bank finance.
Photo: RNZ / Angus Dreaver
The value of debt raised on the NZX's bond market rose 8 percent in the year ended March to nearly $45 billion, driven mostly by a 47 percent increase in wholesale debt and a 27 percent increase in the value of green bonds.
The pick-up in demand was widely anticipated, given rising interest rates and strong annual inflation growth in New Zealand and other major global markets.
Annual inflation hit a 30-year high of 6.9 percent last week, which made it much more certain the Reserve Bank will continue to raise the official cash rate, perhaps another 50 basis points to 2 percent, next month.
Massey University associate professor and banking expert Claire Matthews said bonds tended to go in and out fashion depending on the direction of interest rates.
But she said there were other reasons for companies to turn to the bond market for finance.
"It can be a more expensive source of funding, but it may be seen as a better source of funding then for example, issuing equity, which carries a whole lot of issues."
She said banks could also be finding it difficult to meet the market demand for corporate financing.
"So it's certainly one of the things that may be causing the problem, in that if the banks aren't able to access the funds that they need to be able to provide the loans to the corporates, then it may be that's why the corporates are going to the bond market instead."
Matthews said investors do need to do a reasonable amount of due diligence, but less so if they are investing through a fund manager.
"By buying a bond they are to an extent lending to that corporate and need to be aware of that."