Research by the Hong Kong Monetary Authority (HKMA) on tokenized bonds measured whether the bond issuances to date live up to their touted benefits. It found that tokenization reduces borrowing costs by 0.78% and underwriting fees by 0.22% of the bond’s par value. Additionally, tokenization improved liquidity by 5.3%, rising to 10.8% if access is available to retail investors.
This latter point demonstrates one of the key claimed benefits – fractionalization. By lowering issuance costs, issuers can offer bonds in smaller denominations, lowering the barrier to entry. More buyers means more demand, reducing spreads. The researchers used spreads as a surrogate measure for liquidity.
Some of the findings contradict anecdotal evidence. For example, it found that issuers offered lower yields by 0.78%. In contrast, Union Investment, the most prolific European investor in tokenized bonds says the opposite – that it secures an additional 0.15% yield for its investors. Likewise, liquidity has been a challenge for some bond issuances and was addressed in Switzerland by integrating with the conventional securities depository (CSD) supporting non-DLT savvy investors.
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