Investing

Corporate bonds over-the-counter

Looking for known outcomes? Corporate bonds traded over-the-counter provide certainty, with regular coupon payments and repayment of principal when the bond matures, subject to no default by the issuer. They’re also less volatile than shares; meaning corporate bonds can be a key component of a well-diversified investment portfolio.

If you have millions of dollars to invest, you can choose from a wide range of corporate bonds issued by successful Australian companies. They normally trade in parcels of $50,000, but more commonly $500,000 at a time, meaning they’re inaccessible for most investors.

Because OTC corporate bonds aren’t traded on exchanges there is no pricing transparency. Investors are beholden to their broker who quotes prices on a transaction-by-transaction basis, effectively making fees and commissions difficult to decipher.

XTBs vs. OTC corporate bonds

Thankfully, there is a way for everybody to access the returns from corporate bonds easily. If you’re looking for a low risk investment that provides an attractive and stable income, XTBs might be the answer.

What are corporate bonds?

If a company wants to borrow money to fund growth, or other investments, it has two options; borrow from a bank, or issue bonds.

Corporate bonds are basically IOUs that:

  1. Pay back the loan when the bond matures – known as the ‘principal’ or ‘face value’.
  2. Deliver a steady stream of income, normally paid quarterly or semi-annually throughout the life of the bond – known as the coupon.

Corporate bonds are difficult to access for most individual investors due to the high minimum investment – normally $500,000. 

Introducing XTBs

XTBs (or Exchange Traded Bond units), are securities traded on the Australian Stock Exchange (ASX) that give you exposure to the benefits of individual corporate bonds. You receive the same coupons and principal payment that you’d receive if you were to invest directly in a corporate bond.

  • Coupons = regular, fixed income paid for the lifetime of the bond
  • Principal payment = the amount you lend the company, paid back to you at maturity of the bond.

Easy to access, cost effective and flexible

XTBs trade in large and small parcel sizes, meaning they are accessible to all investors – not just those with very large portfolios. Because XTBs are traded on the ASX, they can easily be bought and sold at any time, so you can access your money at any time.

OTC CORPORATE BONDS XTBs
Diversification benefit
Regular income payments
Transparent pricing
No minimum investment amount
Easily traded on ASX

Download our eBook

Download our free eBook to see how the benefits of corporate bonds stack up to a range of comparable financial products.

The guide is designed to help you understand how to strike the balance between income, growth and security that’s right for you.