The stunted nature of Australia's corporate bond market worries a lot of academics, regulators and participants in the capital markets but not the folks at the Reserve Bank.Reserve Bank deputy governor Philip Lowe told delegates at the Australian Securities and Investments Commission annual forum yesterday that a deep and liquid non-financial corporate bond market would give the Australian financial system greater stability and efficiency.But the fact that the Australian corporate sector made relatively little use of the domestic bond market was not a matter of great concern.Lowe said: "In a perfect world the market would be deep and liquid at all times but I don't think this is required for the market to play [its] role."Instead what is needed is that we have the general infrastructure that would allow the market to respond as necessary. Here I think Australia is relatively well placed. "The legal apparatus exists to issue corporate bonds, the trading arrangements are well established, we have a reasonable number of financial institutions that are able to assist companies in issuing bonds and we have businesses that have experience in the market."Since the mid 2000s, average annual bond issuance by Australian corporations has been equal to about one per cent of GDP, with around two-thirds of that issuance taking place offshore.In most other advanced economies, the corporate sector makes greater use of bond funding. In the United Sates corporate bond issuance is around three per cent of GDP.Currently, bonds that were issued by Australian corporations in overseas markets account for 80 per cent of the total outstanding value of our corporate bond issuance. Only around 30 bonds are issued in the domestic market each year.Lowe said: "In terms of stability, one of the arguments for a vibrant corporate bond market is that it can act as a 'spare tyre'. If the banking system gets into difficulty the bond market can take its place in providing credit to businesses."In terms of the efficiency of the financial system, the bond market can play the role of the competitive edge, ensuring that banks do not charge too high a price for financial intermediation."Lowe said the important issue for policy makers was ensuring that the infrastructure supporting the bond market remained in place and was strengthened over time. He said this strengthening had occurred, through the simplification of prospectus requirements, improved market transparency and the listing of securities on the Australian Securities Exchange."We do have the infrastructure that could support a strong and very active bond market in times of stress or inadequate competition," Lowe said.