For retail investors, the opportunity set for listed income securities outside the Bank Additional Tier 1 (AT1) hybrid universe has been contracting for some time now. This has been most prominent for listed corporate securities in which issuance has dwindled since Standard & Poor’s adjusted its ‘equity credit’ criteria in 2013. Under this criteria, corporate hybrid securities were originally classified as 100% equity from a credit rating perspective. This in turn maintained the underlying issuer’s credit metrics when assessed by the credit rating agencies. However, this was revised downwards to 50% in 2013 giving issuers less incentive to issue these securities and opting to choose cheaper funding sources such as unlisted senior bonds or bank loans. Figure 1. Corporate ASX-Listed Debt & Hybrid Market Source: BondAdviser The opportunity set is further narrowing due to the structure of the Australian corporate debt market. Loan funding remains the principle funding source for domestic companies, representing ~65% of all Australian corporate debt. In contrast, the domestic corporate bond market represents just 4% with issuers favouring the offshore market for its cost-effectiveness and exposure to a broader range of investors. Figure 2. Australian Corporate Debt Composition Source: ABS From a macroeconomic perspective, there is little motivation to issue debt securities. The economic climate remains fairly benign with corporate strategy reflecting the benign state of the Australian economy with limited growth opportunities. Given debt capital markets are predominantly utilised for term funding, this has resulted in constrained levels of primary issuance. Figure 3 illustrates current business investment is nearing levels not seen since Australia’s last recession. Figure 3. Business Investment Annual Growth Source: RBA Overall, the Corporate segment of ASX-Listed Debt & Hybrid Market continues to face an uphill battle. Structural, fundamental and technical factors all continue to impede corporate issuers from coming to the listed debt market for funding. It is difficult to see this from changing anytime soon without a massive overhaul of the retail fixed income market and for this reason, investors may have to look at alternative options to diversify their portfolios away from the bank-dominated investment universe.