BONDS

Bonds

 
A bond is a debt investment, where the investors lend money to an entity, typically corporate or government. In return, the bond issuer will pay the bondholder an interest, also known as coupon (variable or fixed interest rate which the issuer pays for borrowing the funds for a defined period of time). On the maturity date, which is the agreed date of repayment, the investor will get back the borrowed amount, also known as face value, par value or principal amount.

Why trade this product with CGS-CIMB?

Available offerings for Bonds

A government bond or "sovereign bond" is a bond issued by a national government. Commonly, it is a contract that commits to pay out periodic dividends as well as to repay investors on the face value of the initial investment come maturity date.


Minimum lot size starts from SGD 250,000 or USD 200,000.

A corporate bond is a debt security issued by a corporation or financing vehicles and sold to investors. CGS-CIMB offers both investment-grade corporate bonds and High-yield bonds.


Minimum lot size starts from SGD 100,000 to SGD 250,000

Supports

Over-The-Counter (OTC)

Clients can trade Bonds OTC at our CGS-CIMB Securities offices or contact our Trading Representatives to place a trade.
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FAQs

For existing CGS-CIMB client, simply contact your Trading Representative ("TR") to place a Bond trade.


For new clients, please visit any of our CGS-CIMB offices to open a cash trading account. Thereafter, clients may contact their respective Trading Representatives to place a Bond trade.

Current yield is a commonly quoted yield calculation used to evaluate the return on a bond for a one-year period. It only accounts for the interest or coupon payments that the bond returns to investors. This yield is calculated by dividing the bond's coupon rate by its current market price, but it does not account for any capital gains or losses when the bond is sold. If the bond is not sold within the year, this yield calculation will provide the bondholder with an accurate assessment of his or her return.


The only way a bond's current yield could be negative, using this basic evaluation, is if the investor was receiving negative interest payments, or if the bond somehow had a market value below $0 – both of which are very unlikely to occur.

Minimum lot size starts from SGD100,000.

Open an account now

Simply contact CGS-CIMB Securities to request for an account opening pack.

1800 6227272 / (65) 62108453

clientservices.sg@cgs-cimb.com

Download our registration form and mail it to the desired branch with all the enclosures.

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Key Risks

The key risks associated with Bonds include the following. It is important to note that the list of risks is not exhaustive.
Interest rates movement drives bond price movement; if interest rates rise (fall), bond prices fall (rise). The relationship is inverted. For example, if the Central Bank announces a cut (hike) in the prevailing interest rate, bond prices typically rise (fall). However, if an investor purchases the bond and holds to maturity, fluctuation of interest rates (in turn, bond prices) should not affect him/her, as the investor is guaranteed the rate of return (yield) which the investor purchases the bond at. However, he/she will still be subjected to the credit/default risk of the company, covered in detail below.
Purchasing a bond can be seen effectively as an investor ‘providing a loan’ to the entity issuing the bond (can be companies, countries, government agencies) at the interest rate (yield to maturity). However, many fail to understand that corporate bonds depend on the company’s ability to repay the debt rather than guaranteed (to be redeemed) by any government. Thus, it is important for investors to factor the risk of default into their investment decision.
When an investor purchases a bond, he/she commits to receiving a rate of return (yield) for the duration (to maturity) of the bond or for the time he/she holds it. During this period, if inflation (or cost of living) rises dramatically higher, prevailing interest rates typically will be higher, and as a result, bond prices will fall.
In the event the investor decides to sell the bond (before maturity), he/she might suffer real trading losses. If the bond is held to maturity, the investor receives the rate of return (yield) (no real trading loss), but the investment will not cover the rise in the cost of living (inflation), resulting in a negative real rate of return. Example: Investor purchases a bond at 4%, but inflation rises to average 5% for the life of the bond, the real rate of return to the investor is -1%.
It is a little secret that many do not know: Bond yields (to maturity) are calculated based on coupon payments being reinvested at that yield! Example, investor purchases a bond with yield (to maturity) at 4% paying 4% coupon annually, he/she will only earn that return if every year, the 4% coupon is reinvested at 4% till the maturity of the bond!
Another source of reinvestment risk can come from bonds being called unexpectedly (due to a corporate event) or on the call date (for callable bonds). This puts the investors in a situation whereby he/she have funds that cannot be reinvested to achieve the expected rate of returns!
As explained above, call risk should be managed by investors when purchasing callable bonds. However, the converse is also true; if the client expects the callable bond to be called on first call date but the company chooses to extend the callable bond further (by compensating investors with higher coupons), that can be detrimental to the investor who might be awaiting funds from the bond redemption. This is known as extension risk.
Rating institutions frequently evaluate a company’s credit rating based on its ability to repay on its debt obligations. Should there be any rating changes (downgrades), banks and lending institutions will likely increase the interest rates charged on any future loans. Such a move will adversely impact the company’s ability to repay its debt and might affect bond prices, leading to real trading losses should the investor sells the position before maturity.
There are more than 50 different Apple Inc (AAPL) bonds outstanding (varying across currency, maturity, seniority) while there is only one stock (equity) listed on NASDAQ. And not all of them are actively traded (with more than 300,000 bonds outstanding)! An investor is therefore exposed to the risk of inability to sell his/her bonds quickly due to a thin market with little buyer and seller of the bond.
Further, there is a greater risk that the eventual price that gets executed is lower than expected due to the thin market.

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