Moves are afoot in the Local Government Stock market to legislate a return to the pre-1998 position of allowing Local Government debt issues to be retailable to small investors without the issuance of a prospectus. Law firm Simpson Grierson are leading the campaign, supported by ourselves and other industry participants. Over recent years most Local Government debt issuers have found the direct wholesale placement route has delivered the lowest all-in funding costs above swap.

Therefore small investors/ratepayers have been unable to invest their money in their own local council's debt securities. As a consequence many unsophisticated investors went chasing yields offered by third-tier finance companies and some have paid the ultimate price of not getting all their money back!
It could be expected that greater liquidity will come into the Local Government debt secondary market if the wholesale-issued securities are able to be downsold by banks and institutional investors into the retail investor market.

Eventually, enhanced market liquidity should lead to a reduction in issuance spread above swap. Already, due to strong demand from an increasing number of local fund managers who are willing to hold un-rated Local Government securities, issuance spreads for 10 year maturities have reduced from above +30 basis points two years ago, to below +20 basis points today. It could be argued that Local Government pricing is still perhaps too generous to investors vis-à-vis bank swap levels. Semi-Government (State) bonds in Australia are priced at 20 to 24 basis points below swap. Local Government credit risk is superior to bank risk, but lack of liquidity has held pricing up above bank swap levels to date.