This week, three companies - Fletcher Building, Genesis Energy and South Canterbury Finance - announced bond issues totalling $350 million with the ability to accept $175 million of oversubscriptions.
"The plethora of new fixed interest issues due to be released to the New Zealand market is symptomatic of the fact that corporates are recognising that now is an opportune time to obtain retail funding given that alternative sources of finance are drying up."
Retail funding in New Zealand was cheap compared with the cost the companies would have to pay if they were to source funds offshore.
Given that credit markets were going to remain tight, it was reasonable to expect a raft of new issues in the next six months, he said.
Retail funds would diminish as more of the issues came to the market, forcing companies to pay a higher margin to secure future funding.
Investors needed to be cautious about what companies they considered and how much money should be apportioned across a portfolio.
Much of the issued debt would be unsecured and subordinated and ranked just ahead of ordinary shareholders.
"It is worth highlighting that the company's name alone should not be solely relied upon as being adequate assurance that the security is safe."
The Government's statement this week regarding contingency plans to bail out large companies should send obvious warnings to investors that the Government was concerned about the potential risk to the country's corporate sector, Mr Reid said.
In a falling interest rate environment, investors must be vigilant about chasing higher-yielding securities.
The deposit guarantee scheme should be looked upon as being a good safety net but investors should still evaluate the underlying company being considered and review the interest rate offered relative to other securities in the market.
"This is particularly pertinent, given that no-one knows what the environment will be like in two years' time when the deposit scheme finishes.
"The biggest down side of the scheme is that interest rates will be lower because investors are paying the price for the insurance premium."
The risk for the next six months for investors would be the "income crunch".
Many investors would be coming off term deposits that had been paying returns of up to 8%.
It was likely that bank reinvestment rates would be closer to 5% in the next six months.
Fixed income investors should be cautious about chasing interest rates down and being tempted into locking up funds for lengthy periods as the Reserve Bank continued to reduce the official cash rate, Mr Reid said.
Pressure was often applied to obtain allocations before a rate was set.
However, retail investors should consider themselves to be in the "box seat" as far as selecting suitable investments.
"They must recognise they are the ones that are providing liquidity in an environment where funds are hard to come by."
