EasyEquities launches government bond offering

EasyEquities is now offering government bonds on its investment platform. The facility went live on Friday, 17 November, and already thousands of retail investors have invested in these products.

“Our bond offering opens up a new market for debt instruments, which were previously only available for high and ultra-high net worth investors,” says Nilan Morar, head of trading at EasyEquities holding company, Purple Group. “This was mostly due to the large ticket sizes and barriers to access.”

Morar points out that retail savings bonds were designed in an attempt to address this… “but distribution has been poor, and the product is quite restrictive,” he says.

EasyEquities’ access to government bonds gives small investors access to the government bond market with no platform charges and highly competitive transaction rates.

The availability of SA government bonds on the EasyEquities platform adds a welcome extra layer of choice for the retail investor in South Africa. Bonds also offer predictable income, preservation of capital, diversification, liquidity and a level of protection against inflation.

“The fact that ordinary retail investors now have access to these instruments is extremely exciting,” adds Morar. “It’s a true example of democratisation in action.”

Morar says investors will be quoted the dirty (all-in) price when purchasing bonds.

“This dirty price includes the clean price plus accrued interest, allowing us to cater for all the nuances specific to a bond’s price,” he explains.

Although the yield-to-maturity is the most frequently quoted format when transacting in bonds, the EasyEquities system is price based. This meant designing a delivery mechanism that allows the dirty price to be quoted on the system.

“We were able, in partnership with Rand Merchant Bank, to make adjustments on our system that allow us to provide the all-in price at the point of purchase,” says Morar. “As a result, our clients have access to buying and selling prices that they can easily transact on at will.

“The position reflects as units of nominal or face value invested.”

As an example, Morar used the 12-year R2035 bond with a current yield bid/offer spread of 11.63 to 11.60. That translates to a dirty price bid/offer of 84.9670 – 85.1305.

“This means that when clients buy 100 units of face value of the R2035 bond, they will pay R85.1305 (excluding costs). Likewise, if they sell 100 units of face value, they will receive R84.9670 (excluding costs).

“In keeping with our approach of value-based investing, if a client buys R100 worth of the above bond, they will receive 117,4605 units of face value.”

EasyEquities’ initial offer comprises bonds that represent specific points on the local bond yield curve. The various maturities of the bonds offered are 3 years,  7 years, 12 years, 17 years and 25 years.

“These different maturities currently represent yields to maturity of between 8.8% and 12.15%,” says Morar. “Naturally the shape and structure of the yield curve can change over time, and this will affect the price of the bonds we offer.”

The points circled in red on the graph above represent the points on the bond curve that the EasyEquities offering represents. Source: Bloomberg

For all intents and purposes, the product presents as an equity product would. Bonds can be bought and sold at any time while the markets are open, through your ZAR or TFSA wallet.