16 October 2006

FT: Lobby's survey points to less need for bonds oversight

Institutional investors account for 98 per cent of government bond purchases and 97 per cent of all corporate bond purchases in the primary market, according to the first survey of banks that sell the debt by the Bond Market Association.

The results of the survey are expected to form part of industry attempts to head off any move by Brussels to impose greater oversight on bond markets under the Markets in Financial Instruments Directive, or Mifid.

The European Commission is due to decide by November 2008 whether the directive should impose greater transparency on the fixed-income markets as will happen in equities markets from November next year.

The industry, led by lobbying groups such as the BMA, has come out strongly against such a move, with the support of the UK regulator, saying it could seriously affect liquidity in the markets.

European Union members Italy and Germany pushed for the change, based on a claim that retail investors have a higher involvement in bonds in their markets.

'We did this survey to inform our advocacy position on the issue of transparency in the bond markets,' said Bertrand Huet-Delaherse, European legal and regulatory counsel at the BMA.

'It's one thing to tell the Commission that it's an institutional market, but this data backs up the fact the retail participation in the primary markets is very low indeed.'

Mr Huet-Delaherse denied suggestions that the survey had simply thrown up the answers that suited the industry.

'When we sent out the e-mail to the 20 banks involved, we said the survey would inform our position in the transparency debate, but we did not frame the questions - we just asked for data on distribution,' he said.

The survey, to be published today, canvassed Europe's 20 leading bond issuers about the geographic location of investors, as well as the type of investor that bought European government debt, investment-grade and high-yield bonds, and European structured products.

Other interesting findings include that traditional fund managers and hedge funds dominate the high-yield, or junk, bond markets with 41 per cent and 27 per cent respectively.

Banks, meanwhile dominate the markets for collateralised debt obligations and asset backed securities, which both pool together groups of other debts and sell off notes with various risk profiles.

Banks buy 46 per cent of all CDOs and 47 per cent of ABS bonds, the survey found.
By Paul J Davies

© Financial Times