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Types of bonds
By Bond Issuers
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Corporate Bonds
Issued by listed companies or their subsidiaries. An example of a corporate issuer is Hutchison Whampoa.
- Government Bonds
Issued by governments. An example is US Treasury Bonds.
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Supranational Bonds
Issued by an entity that does not have one particular national identity. Its membership is normally composed of a number of central banks or government financial authorities. Examples include the World Bank and the Asian Development Bank.
By Coupon Rates
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Fixed Rate Bond
A bond that pays a fixed rate of interest, which will remain unchanged over the life of the bond.
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Floating Rate Bond
A bond with coupon payments reset periodically, linking to the level of a market reference yield such as HIBOR or LIBOR.
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Zero-coupon Bond
A bond that pays no coupon interest. It is sold at a discount from par value. Investor may earn income as the bond price moves towards par over time.
Major risks associated
with Bond Investment
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Credit Risk
Risk that the issuer is unable to make timely principal and interest payments in respect of the bond. Bond price changes with the perceived credit risk, which is gauged by credit ratings assigned by international rating companies such as Moody's and Standard & Poors.
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Interest Rate Risk
A rise in interest rate may cause bond price to decline, thereby resulting in a capital loss if the bond is sold before the maturity date.
- Liquidity Risk
An inactive or illiquid secondary market may cause difficulty in selling some bond issues.
- Other Risks
Other risks associated with bond investment include call risk, inflation risk, etc.
Price and yield relationship
Bond prices are usually quoted as a percentage of par value. Although the coupon rates of most bonds are fixed, market prices of bonds will usually fluctuate broadly in line with market interest rate movements. The prices of bonds move in the opposite direction from the change in required yield.
Maturity and yield relationship
In general, the longer the term to maturity, the higher the yield demanded by bond investors to compensate for the greater risk.
Bond is an investment product. The investment decision is yours but you should not invest in the product unless DBS Bank (Hong Kong) Limited has explained to you that the product is suitable for you having regard to your financial situation, investment experience and investment objectives. |
Disclaimer
Investment involves risks. The above information is for your reference only and does not constitute any offer or solicitation to enter into any investment arrangement. This information is from sources believed to be reliable, but no representation is made and no responsibility is accepted for its accuracy or completeness. Before entering into any transaction, you should take steps to ensure that you understand the transaction and have made an independent assessment of the risks and appropriateness of the transaction in light of your own objectives and circumstances, including the possible risks and benefits of entering into such transaction. Please contact your investment advisor and / or other appropriate professional for advice. Investors should note that market prices of bonds and other securities may go down as well as up.
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