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Meridian’s bond issue won’t dent demand for high-grade corporate debt

A new retail bond issue from state-owned Meridian Energy is unlikely to dent demand for high-grade corporate bonds, which remains strong in the face of historically low interest rates.

Wednesday, 30 September 2009

by Paul McBeth

The power generator and retailer's chief executive Tim Lusk told a Meridian profit briefing it will enter the retail bond market for the first time in the first three months next year, though the exact size of the Renewable Energy Bonds has yet to be finalised.

Still, demand for secure fixed securities that offer a decent yield is strong and the prospect of waiting until next year will not sit well with all investors, according to Direct Broking director David Speight.

"There are people with cash burning a hole in their pocket only earning 3 or 4% who won't want to wait until next year," Speight said. "There will undoubtedly be other issues before Meridian."

Demand for investment grade bonds with decent yields has pushed up prices since the credit crisis last year as companies looked towards retail investors to bolster their balance sheets.

Earlier this month, an ASB report said now was a good time for investors wanting to sell, as there was little competition and demand was still strong.

Speight agreed that it is not a bad time to sell, but said investors need to consider whether alternative investments will be able to match the yields on offer.

Michael Warrington, a senior consultant at Chris Lee Sharebroking, said bonds look overpriced due to the lack of competition. Still, many investors treat bonds as a term investment and he would not expect to see a flood of sellers trying to take advantage of the lack of quality issuers.

 

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