In some of my recent articles, I referred to the increased activity in the Maltese corporate bond market both in terms of new issuance (primary market) as well as with respect to trading in existing issues on the secondary market.
During the first half of 2022, trading activity across existing corporate bonds on the secondary market reached a record level of €56.3 million. In prior comparative periods, trading activity in the first half of the year was always below €50m, except in the first six months of 2020 when almost €56m worth of bonds changed hands. The high level of activity two years ago was undoubtedly due to increased concern by many investors at the start of the COVID-19 pandemic. This translated into a very busy trading period between March and June 2020 as investors sought to liquidate a number of positions in their portfolios while others took advantage of the fall in prices to obtain more favourable yields from fundamentally asset-rich companies.
The surge in activity on the secondary market may go largely unnoticed by many retail and institutional investors. Prior to 2017, trading activity on the secondary market during the first half of the year hardly ever exceeded €30m. In fact, the €56.3m worth of bonds that changed hands in the first half of 2022 represents a 118% increase from the level of trading activity in H1 2016, and is almost equivalent to a full year’s worth of deals in 2015 and 2016.
When analysing the statistics of the trading volumes in the first half of 2022, it is interesting that the most actively traded bond was the 3.5% GO plc 2031 issue, of which a total of €4.9m changed hands. This represents just over 8% of the overall size of the bond issue of GO plc at €60m.
The second most actively traded bond was the 4.25% Best Deal Properties Holding plc 2024 issue with almost €4.5m changing hands. This was mainly a result of the company’s buy-back programme following the successful property development activities undertaken over the years. In fact, the outstanding amount of bonds in issue has been reduced to €9.2m, compared to the original issuance of €16m at the end of 2018.
Another particularly actively traded bond was the 3.65% Mizzi Organisation Finance plc 2028-2031 issue with just over €3m changing hands, representing almost 6.7% of the overall issue size of €45m.
From the trading statistics during H1 2022 it is also interesting to highlight that the three largest bonds in issue – namely the €80m 3.65% International Hotel Investments plc 2031, the €80m 3.80% Hili Finance Company plc 2029, and the €66.9m 3.50% Bank of Valetta plc 2030 – do not feature among the top 10 most actively traded bonds. Incidentally, all three are currently trading below their par value.
This significant rise in bond trading is a natural outcome from the increased number of bonds in issue over the years. The size of the bond market now exceeds €2.24 billion, with 78 bonds listed on the Regulated Main Market of the Malta Stock Exchange. 2022 has been a particularly busy year so far with a total of €336.6m in bonds that have already been listed or are in the process of being listed after obtaining regulatory approval.
The increased depth of the bond market should be viewed positively by various market participants as well as by the investing public. While the Maltese capital market has so far correctly been defined as one that is generally very illiquid, thereby making it difficult for investors to dispose of their holdings in a relatively short period of time, the higher level of activity in both the primary and secondary corporate bond market is welcome news as it is clearly becoming a more liquid market.
The increased depth of the bond market should be viewed positively by various market participants as well as by the investing public
The new entrants to the corporate bond market in recent months and years also from other economic sectors is enabling investors to build a better diversified portfolio of investments. Moreover, this also helps investors devise an investment strategy based on the concept of ‘bond laddering’. This entails having a portfolio of bonds with varying maturity dates, thereby spreading the timing of the reinvestment. Such an investment strategy gains popularity in a rising interest rate environment since an investor will have bonds maturing at regular intervals which can then be reinvested upon maturity at higher interest rates in the future.
Hopefully, the high level of new bond issuance seen since the start of the year will continue in the months ahead, thereby providing investors an increased choice of potential opportunities to grow their investment portfolios and achieve further diversification. The continued surge in resident deposits registered by the main retail banks in H1 2022 is further testament to the high levels of liquidity in the financial system and retail investors’ growing appetite to increase their participation in the corporate bond market.
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