Retail investors are being prevented from investing in the UK corporate bond market because of the way the market is structured, according to a new report.

The Investment Management Association (IMA) has warned that investors find it difficult to understand the risks of different corporate bonds, because of the large number of bond issues and the complex way they interact.

Retail investors in the UK are also put off buying bonds directly because the minimum permitted investment, with some exceptions, is usually £50,000. In Germany, in comparison, the majority of bond issues have a minimum investment of just €1,000.

”While markets should be freely available to both retail and institutional customers, the research shows that, while bonds may on the face of it be easier to understand than equities, the nature of primary issuance and secondary market trading arrangements in the UK act to prevent retail participation in the sterling corporate bond market,” said Jane Lowe, director of markets at the IMA.

It is also difficult to design and implement best execution rules that are “critical” for investor protection, the IMA said, because of the lack of transparency in the market.

The IMA is calling for reform of the corporate bond market and said the Bank of England should take more of an interest in the market in the short term.

The findings came out of an IMA-commissioned report looking at the impact of the credit crunch on the sterling corporate bond market.

UK investors tend to gain access to corporate bonds by buying a fund offered by an investment house. Fund managers have seen investors flood into their funds in recent months, tempted by yields which many argue are too high relative to the risk of companies defaulting, and the possibility of a price uplift once yields fall.

However, most mainstream managers are sticking to investment grade bonds rather than high yield bonds, which tend to be riskier.

Nearly 7.5 per cent of low-rated companies failed in the year to March, according to Moody’s, compared with 2 per cent the year before.

John Stopford, co-head of fixed income at Investec Asset Management, warned that even the yield premium of 14 per cent on high yield bonds was not sufficient to cover such losses.