New Zealand investors have fewer choices to invest in quality bonds than those in Australia, Europe, Britain and the United States.

The NZX's corporate bond market has grown, but it has a relatively thin spread of companies and government authorities offering relatively few bonds.

This has been a problem for savers and borrowers. "Mum and Dad" investors looking for investments that generate a regular income that is slightly more than what they can get in the bank have tended, in the past, to go for finance companies and mortgage trusts.

This has been a painful experience for many. Currently, $5.969 billion is frozen in 177,481 accounts in 43 finance companies, mortgage trusts and mortgage-linked investment funds.

Investors have now rushed to the relative safety of banks, but their returns are low and getting lower as the Reserve Bank cuts the official cash rate, possibly as low as 3.25 per cent next year, says JP Morgan.

The advent of the government guarantee scheme for retail deposits of up to $1 million in banks, finance companies, building societies and credit unions has changed the landscape somewhat.

The idea was that it would encourage investors looking for higher yield with low risk to go for finance companies that offer high rates with a "free" government guarantee. The theory was this shift to guaranteed institutions would make it difficult for corporate and other bond issuers to attract "Mum and Dad" investors, given they lack the same guarantee. But it hasn't worked out that way.

Finance companies slashed their interest rates this week in anticipation of receiving their guarantees and as their coffers have been filled in recent weeks by an influx of relieved investors wanting high interest rates.

Marac Finance cut its 12-month rate from 8.75 per cent to 8.25 per cent, while South Canterbury cut its two-year debenture rate from 10 per cent to 8.2 per cent. These rates are likely to keep falling as the OCR is cut and finance companies struggle to find quality lending opportunities to use all this extra money.

Also, corporate bonds have not been as unpopular in the current environment as many expected. Auckland Airport raised $130 million through an issue of eight-year bonds with an 8 per cent interest rate and described demand as "hot" despite the guarantee scheme.

Trustpower is also looking to raise $100 million through a seven-year bond issue with an 8.4 per cent interest rate.

So there are still opportunities for bond issuers and demand from investors. This also opens up a huge opportunity for central and local governments to raise money for infrastructure projects through bond issues that are traded on the NZX's debt market, the NZDX.