Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 613

Corporate bond opportunities in today’s market

There's no doubt we are living in uncertain times. And it's not just the impact of Trump's tariffs and the disintegration of world trade agreements on markets and economies. We are also witnessing ongoing military conflict, the dismantling of NATO, and an acceleration of AI adoption that we are yet to understand the full consequences of. Any one of these events would have a massive impact on global markets and economies, but to be experiencing them all at once is disconcerting for even the most rational investor.

As equity markets fall, there is often a rush to sell and to move to perceived safer investments such as bonds, cash and gold. But a diversified portfolio should always have a varied asset allocation strategy that allows for investments in fixed interest and different kinds of credit arrangements.

Although there are plenty of fixed income managed funds available to retail investors - across all kinds of credit, including the private credit subsector - we are seeing particular opportunity in direct issuances of institutional-grade corporate loans and bonds.

We recognise that this is not possible for many retail investors due to the size of minimum investment. But when it is, it is arguably one of the better options for credit investors – including as an alternative to Tier 1 bank capital that is due to be phased out by the regulator by 2032.

The benefits of direct investments

There are several benefits to holding corporate credit issuances directly instead of through a managed fund or an exchange traded fund that holds many securities. The most obvious one is that, as the ultimate end investor, you get to control when you buy and sell the asset.

This is especially important in times of market turbulence. Market prices may fluctuate along the way, but if you hold an institutional-grade corporate bond or loan to maturity then you will nearly always get your money back plus the coupon payments you receive.

If you are in a managed fund, you are at the mercy of the fund manager and what they decide to do with the investment. And if many investors choose to sell the fund, those further back in line can get stuck waiting for a liquidity window to sell - possibly at a different price.

If you are lucky enough to invest in an issuance with a coupon of 7.2% or more and hold it directly while reinvesting the coupon payments, you will double your money every 10 years. Here are a couple of recent examples.

Pacific National subordinated hydrid

This subordinated bond offers compelling value, trading at an attractive yield of around 8% that is underpinned by resilient fundamentals and a supportive shareholder base.

The recent hybrid issuance qualifies for 50% equity credit, improving credit metrics immediately. In addition, the Queensland cyclone’s impact on operations was minimal and coal pricing appears to have bottomed with a solid demand outlook.

EBITDA is expected to grow 3-4% a year, aided by CPI-linked contracts, cost-out initiatives ($65 to $85 million), and asset sales ($150 million). We remain confident in the company’s credit trajectory.

ClearView Wealth subordinated bond

ClearView have a subordinated bond with a floating rate coupon of +350 and a current coupon of 7.6%. This has upside as a potential takeover candidate.

ClearView started out as NRMA Life in 1976 but relaunched as ClearView in 2010 under the current ownership. The company is now a pure-play life insurer after divesting its wealth and advice businesses, cleaning up the story for potential acquirers.

The global life insurance market is highly consolidated, with only a few major international players that are actively seeking growth opportunities. Similar past takeovers, such as Dai-ichi Life’s acquisition of Partners Life in 2022 or Dai-ichi/TAL’s recent purchase of a 15.1% stake in Challenger highlight continued consolidation in the sector.

Attractive potential returns and easier access

Even if you were to spend the coupon payments instead of reinvesting them, an investment of $500,000 in an issue with a 5% yield and 10 years until maturity could see you collect $250,000 in coupon payments and the return of your original $500,000 at the end.

Investment managers that specialise in this asset class can provide wholesale investors with access to issuances from large ASX-listed names with good structures, on which banks have often already done due diligence.

Deals that have institutional support are also preferred because having sophisticated and large investors in the book build process increases our confidence that the offer is competitively priced.

Partnerships between providers and platforms like Netwealth and HUB can give advisers and their investor clients access to fixed income investment opportunities, including over-the-counter bonds.

Advisors using these platforms now have access to over 500 bonds in parcels of $50,000, making it an affordable option and one that provides valuable portfolio diversification. This is quite an easy way to access investment grade corporate bonds, and we have seen growing interest from financial advisers.

 

Jenna Hayes is Head of Sales and Executive Director, Capital Markets at Income Asset Management. This article is for general information only and does not consider the circumstances of any investor.

 

RELATED ARTICLES

Does gold still deserve a place in a diversified portfolio?

Where to find value in a multi-asset portfolio

Investors need to look beyond bonds for safety

banner

Most viewed in recent weeks

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Australian house price speculators: What were you thinking?

Australian housing’s 50-year boom was driven by falling rates and rising borrowing power — not rent or yield. With those drivers exhausted, future returns must reconcile with economic fundamentals. Are we ready?

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

Latest Updates

Shares

Why the ASX may be more expensive than the US market

On every valuation metric, the US appears significantly more expensive than Australia. However, American companies are also much more profitable than ours, which means the ASX may be more overvalued than most think.

Economy

No one holds the government to account on spending

Government spending is out of control and there's little sign that Labor will curb it. We need enforceable rules on spending and an empowered budget office to ensure governments act responsibly with taxpayers money.

Retirement

Why a traditional retirement may be pushed back 25 years

The idea of stopping work during your sixties is a man-made concept from another age. In a world where many jobs are knowledge based and can be done from anywhere, it may no longer make much sense at all.

Shares

The quiet winners of AI competition

The tech giants are in a money-throwing contest to secure AI supremacy and may fall short of high investor expectations. The companies supplying this arms race could offer a more attractive way to play AI adoption.

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Infrastructure

Renewable energy investment: gloom or boom?

ESG investing has fallen out of favour with many investors, and Trump's anti-green policies haven't helped. Yet, renewables investment is still surging, which could prove a boon for infrastructure companies.

Investing

The enduring wisdom of John Bogle in five quotes

From buying the whole market to controlling emotions, John Bogle’s legendary advice reminds investors that patience, discipline, and low costs are the keys to investment success in any market environment.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.