Market participants agree that demand from this investor base notably picked up after the pandemic, when interest rates and bond yields started rising. At the same time, Australia’s ageing population is starting to drive more demand into income products, while limited direct retail access to bonds means the local market’s infrastructure lends itself to aggregation.

Issuers have taken note. James Knight, director, group funding at ANZ in Melbourne, tells KangaNews: “The middle market and aggregator channel has grown over time thanks to a couple of drivers – the most obvious being the pickup in rates. A number of aggregators have clients that are comparing dividend yields and risk-adjusted returns against fixed-income returns, deposits and other alternatives. These accounts have been quite attracted to fixed-income product given base rates are much higher.”

The products in focus tend to be higher-yielding but investment-grade. Charles Evans, Sydney-based head of funding and middle market at ANZ, says demand from aggregators in Australian dollars is heavily weighted toward higher-yielding credit including bank tier-two notes, corporate hybrids and mezzanine tranches of residential mortgage-backed securities (RMBS).

The reason is straightforward. Mark Trevarthen, Sydney-based investment consultant in UBS’s wealth management team, explains: “We always have to bear in mind that our client base is focused on absolute returns, which means the absolute yield on a bond is of great importance.”

Trevarthen explains that even higher-yielding investment-grade securities fell short of clients’ return hurdles until the post-pandemic interest rate spike. “For a long time even the high-beta products like hybrids were not offering yield that was genuinely interesting for our clients. Now we’re in the position where there is a meaningful gap between a good-quality corporate bond, for example, and the cash rate – and we would recommend the bond,” he tells KangaNews.

Similarly, Kim Pham, Sydney-based head of markets group at JBWere, says her firm’s clients have become interested in corporate subordinated debt, with utility and infrastructure names as favoured sectors. She highlights TransGrid’s A$1.4 billion (US$874.4 million) subordinated deal, which priced in March, as a transaction that offered issuer and sector diversification as well as yield enhancement.

Pham says JBWere has also been investing in tier-two Kangaroo bonds on behalf of its clients, to provide greater diversification against the domestic exposure it has to bank additional capital.

According to Evans, the uplift in participation from the aggregator channel in certain primary credit transactions has become more profound in the last 12 months. It is now sufficiently significant that it has improved overall liquidity and the way some transactions are executed has shifted in order best to accommodate it (see box).

Market participants suggest increased demand from aggregators is a welcome development. But the cyclical factors that helped drive growth of this demand into fixed income lead some to ask what might happen as interest rates fall once more.

The Reserve Bank of Australia (RBA) has only made one 25 basis point cut to the cash rate so far in 2025. But analyst and market consensus of a shallow and steady cutting path has been revised to expectations of a more aggressive loosening approach in line with growing risk of a Trump-triggered recession in the US.

“If the RBA has three more cuts this year, which has been suggested, it may slow down the progression of HNWI demand into our market – or it will if equity dividends become more attractive and provide more competition in the space,” one major-bank credit salesperson suggests. “My personal view is that demand can grow from here, but it might not be at the rate of the last 6-12 months.”

On the other hand, there are reasons to believe higher baseline aggregator demand for fixed income is here to stay. Evans explains: “At retail level, the Australian market was traditionally very equity-skewed. But there has been a structural shift – accelerated by the pandemic – whereby investors realised they needed to have capital preservation within their investment portfolios. They are also seeking more stable income. I believe this structural change will be there indefinitely.”

Trevarthen says his clients have been won over by the stability of fixed income, including coupon payments landing in their portfolios on a regular basis while the value of their assets is largely stable. He thus believes HNWI demand should be stickier than some might expect even in the context of monetary policy easing. However, he also notes that it remains important to have a bond allocation that provides flexibility to take advantage of market movements or even cash out if needed.

Trevarthen continues: “One of the conversations we’re having with clients at the moment is that, while rates are likely to head lower, they should factor in what the current market is pricing means for term deposit rates. Locking in a bond yield at around 5 per cent means they will be sitting pretty in 12 months’ time.”

It is also worth noting that, while cyclical factors played a role in driving aggregator demand, there have been other structural tailwinds. The most notable is Australia’s ageing population, which is increasingly delivering pension-aged people the proceeds of their superannuation investments – from which they will typically aim to generate a retirement income.

Evans comments: “Australia’s ageing population means there are a lot more individual clients sitting within aggregators who are looking for income investments as opposed to equities or growth-style investments. This has been a natural backdrop that has become more profound in the last couple of years.”

According to Pham, the overall number of HNWIs in Australia has also been growing year-on-year. This bigger pool of investors is also contributing to greater demand for the fixed-income asset class.

Market sources also believe there is untapped potential in the SMSF sector. According to Australian Prudential Regulation Authority data, Australia’s total superannuation assets under management (AUM) reached A$4.2 trillion in December 2024 with SMSF forming almost one-quarter of the total. But SMSF investors have typically had microscopic allocations to fixed income.

“SMSF is a large pool of capital that issuers of bonds haven’t but potentially should get access to,” Andrew Gordon Sydney-based managing director at Ord Minnett, suggests. “A lot of the capital in self-managed super is looking for low-beta income-style products – not the super risky asset classes.”

UBS, JBWere and Ord Minnett all report increases in their fixed-income AUM, by varying degrees, over recent years. There is still room for further growth.

Trevarthen believes most of the sophisticated investor category remains underweight fixed income. He points to other parts of the developed world – including the US, the UK and Europe – where HNWIs allocation into fixed income is much higher.

Fostering more growth in demand for wholesale fixed income from HNWIs might come from continuing education on the asset class and improving access to it. For instance, JBWere has doubled its direct bond exposures as a proportion of total assets under management over the last five years and Pham attributes this in part to “developing our direct bond capability to enable access and a big education piece” on diversification and the asset class.

Pham says JBWere has also been working on its capital markets and trading capability to give its clients better access to fixed-income opportunities, as a lot of wealth managers do not have the scale or expertise to run a direct fixed-income proposition with a bond trading desk and dedicated research support.

She explains: “We have tried to invest in this space because we also found that during the pandemic a lot of our clients moved away from being purely invested in fixed income via funds. Our clients have evolving, bespoke needs and really like the transparency and control that comes with managing their own direct fixed-income portfolios.”

Ord Minnett has transitioned to something closer to a wealth manager model from a traditional broker and in doing so has in the last 2-3 years gone from having no funds in wholesale bonds to more than A$1.3 billion. For wholesale fixed income to gain traction with this investor base, Gordon suggests it is important to continue educating clients about the asset class. His team completes ongoing education about wholesale fixed income with advisers every three months so that they can discuss it with their clients.

Customer interest in the asset class has to be combined with getting advisers as comfortable with the market as they have traditionally been with listed equity, Gordon explains.

“The wholesale market is more opaque than ASX listed equities,” he tells KangaNews. “We have done things to make it less opaque for advisers and clients – to make it more like what they see with the ASX. If they can see what they want to know being reported and priced daily, the advisers generally feel okay about it.”