The running commentary about the retail bond market this year has focused on the perceived lack of issuance. The theory is that companies have found easier access to funds through government-backed schemes like 'Funding for Lending' and so have avoided coming to the market. This impression is misleading, not only because the number of issues so far this year is only one less than the equivalent period in 2012, but also that the volume of trades placed by retail investors has increased markedly, according to new research by Hardman & Co.
Running the ORB market is still probably a net cost for the LSE, but the trends over the past two years seem to going in the right direction. For example, the total number of monthly trades has risen from 1,400 to over 8,000 a month over that period, with a noticeable fall in average trade value from £289,000 to £55,000. In other words, retail investors are getting involved in larger numbers and are helping to improve the market's liquidity. The average value of total monthly trades has been much more volatile depending on what types of bonds come to market. It is possible that institutional investors have used improved retail market liquidity to consolidated their holdings, but monthly trading values have risen steadily to around £4m per issue and suggests larger retail participation, according to Hardman analysts.
The other interesting trend to emerge is the popularity of the later ORB-only issues. Hardman calculates that while ORB-issued bonds make up only a third of the total bonds available on the market, they account for two thirds of all trades. Better marketing to retail investors has played a role here, but bonds have also offered another way to buy into asset-rich companies whose shares are tightly held. For example, trading in the Primary Health Properties 5.375 per cent bond averages over £5m per month, while the Lloyds 5.375 per cent barely manages £650,000. That said, Hardman reckons there has been a general "levelling up" of liquidity for all bonds quoted on the market, not just the new issues.
| Index | Issues | Nominal value £bn | 3M (%) | 6M (%) | 12M (%) | 24M (%) |
| FTSE ORB Index | 85 | 22.5 | -2.65 | -0.82 | 6.87 | 19.16 |
| FTSE ORB Financials | 41 | 9.15 | -2.72 | -0.57 | 12.3 | 21.8 |
| FTSE ORB Non-Financials | 42 | 13.7 | -2.60 | -0.99 | 3.59 | 17.22 |
| *Hardman & Co Research | ||||||
