Where is my invite to the $100 trillion bond market party?

Have you ever wondered why your bank will go out of its way to stress the importance of bond exposure within a portfolio but rarely if ever offer an individual bond? Odd, especially as bonds are touted as the safer asset class and in theory counter the risky nature of equities. In fact, the lowest risk investment strategies, the majority of which hold bonds, are sold with no equity exposure at all. Equity apparently open to all and bonds to the very very few. Is this not disconcerting?

Bonds have exploded in popularity as lower interest rates have fuelled cheap financing for government and corporate borrowers alike. According to some estimates, the global bond market has more than tripled in size in the past 15 years to well over $100 trillion versus $60 trillion for the global equity market. Likewise, daily trading volume in bonds also dramatically exceeds stock market volume by nearly four-times with only a few actors, notably investment banks and 150 or so fixed income investment managers.

So why is buying equity so commonplace and easy, and the bigger asset class bonds are a shut-out for everyday investors. Well it comes down to a structural issue, that is equity is usually denominated in shares with low sticker prices well below $100, whereas bonds are structured in increments of at least $100K. 

Forget retail, an investor with a net worth of $10 million would likely struggle to build a diversified portfolio of bonds. The mere fact that 99% of us cannot invest in a booming bond market, does appear strange and unfair at the very least. But are things about to change?

We would argue, a resounding yes. We see massive opportunity for several entrepreneurs to digitize debt capital markets, either by supporting current traditional infrastructure or by completely disrupting the leading incumbents. We would further argue that the opportunity could be much bigger than today’s hype over crowdfunding and peer-to-peer lending combined. Whilst we have several targets in mind, we remain incredibly open to bold ideas and extraordinary people.

1648 Capital is an early stage advisor and investor in people. We invest in companies with the potential to disrupt whole industries. We bring deep experience and our expansive network to help develop and scale businesses globally. Our credo is independence and discretion, hallmarked by the year in which European powers recognised the Swiss Confederation as an independent state.

The opinions expressed in this blog are the author’s own and do not constitute investment advice (or advice of any kind). The opinions expressed, or indeed the information or assumptions that underpin them, may contain errors, mistakes or omissions; no assurance or warranty can be made as to the accuracy or completeness of this information and readers should not place any reliance on this content for the purposes of executing investment decisions or for any other purpose. Readers accept full responsibility for the use of this content; and are kindly requested to consult with their professional advisor before making any investment decision related to the same.