RDP 2012-09: A History of Australian Corporate Bonds 3. Up to 1950: Largely Publicly Owned Issuers

During the first half of the 20th century, private investment was largely financed through internal funds and, to a lesser extent, equity issuance (Merrett and Ville 2009). The modest private bond issuance that did occur was mostly to fund mining investment; corporations that later went on to become BHP were the main issuers. In contrast, there was significant bond issuance by PTEs and the corporate bond market grew to be relatively large.

The bulk of the issuance by government-owned corporations took place in the 1920s. The proceeds were used mostly to fund public works programs, with state and Australian governments initiating a range of projects following the end of World War I. Half of the bond issuance was by Victorian water and sanitation boards (Melbourne and Metropolitan Board of Works and the Geelong Waterworks and Sewerage Trust).[4] During the 1920s, investment by PTEs rose from 2½ per cent to 7 per cent of GDP.

Sizeable bond issuance saw the stock of corporate bonds outstanding rise to a peak of around $1 billion in 1932. The stock of corporate bonds relative to nominal GDP peaked at around 80 per cent in 1933, largely because of the decline in GDP during the Great Depression (of around 30 per cent between 1929 and 1932) (Figure 2). This accounted for just under half of the increase in the ratio of the stock of bonds outstanding to GDP over this three-year period.

Figure 2: Australian Bond Market

Over the 1930s and 1940s, the stock of corporate bonds outstanding declined. There was limited bond issuance as governments reallocated resources to finance war-related expenditure and corporations reduced their leverage amid significant uncertainty about the economic and political outlook. The imposition of war-time controls on the banking system also contributed to a lack of bond issuance by banks.

In contrast, there was strong bond issuance by the Australian Government during WWII. Government bond issuance was mostly domestically sourced through ‘war bonds’ that were marketed patriotically to the general population. Households drew down bank deposits, sold shares and took out bank loans to buy war bonds. Households became comfortable buying bonds on the stock exchanges, a legacy that continued over the next few decades as households remained the main investors in corporate bonds. By the end of WWII, the corporate bond market had shrunk to around 18 per cent of GDP.


Sizeable public works projects undertaken in Sydney during this period – including the building of the Sydney Harbour Bridge and Sydney's underground railway system – were mostly funded directly by governments. [4]