Endowment bond provider offers long-term deposit opportunity

A new provider of retirement income products is using zero-coupon bonds sourced from banks and semi-government issuers to provide investors with long-term income streams.

Endowment Bond Exchange, which launched earlier this month, has contracted with Rabobank Australia to supply zero coupon bonds with maturities out to 20 years. It is also offering bonds sourced from Treasury Corporation of Victoria and TCorp (New South Wales Treasury Corporation).

The company's chief executive, Stephen Duchesne, said the company aimed to have a range bonds from different issuers, including the big banks and the regional banks.

Endowment Bond Exchange's focus is on trustees of self-managed superannuation funds and its pitch is that they can lock in a guaranteed retirement income by buying a series of long-dated zero coupon bonds.

The bonds have a face value of $10,000, which is paid at maturity, and are sold at a discount to the face value. There is no coupon payment during the term.

If the concept takes off, it could provide the banks with an opportunity to create products with maturities out to 30 years.

Duchesne is the former head of debt markets for Merrill Lynch Australia. He said: "Endowment bonds are designed for anyone who wants to plan for fixed cash flows at predetermined times."

The bonds do not have to be used for retirement income. They could be used to pay for private school fees or philanthropic endowments - anything involving future payments that can be determined well in advance.