What are bonds?
Bonds are debt securities issued by a borrower with fixed interest payments that provide higher rates than bank deposits. These fixed interest payments are known as coupons, and are typically paid on a semi-annual basis. When the bond reaches maturity, the notional investment sum is returned to the investor. You’ll find a wide variety of bonds issued by governments, quasi-government institutions and corporations globally. OCBC offers a variety of bonds, from developed markets as well as from emerging markets.
What types of bonds are there?
Investment grade bond
A bond is considered investment grade if it receives a credit rating of ‘BBB- or higher’ by Standard & Poor’s, or ‘Baa3 or higher’ by Moody’s. In general, investment grade bonds are judged by the rating agency as likely enough to meet payment obligations.
High yield bonds
Bonds that are not rated as investment grade (non-investment grade) are known as high yield bonds.
Why invest in bonds?
An essential and core allocation to a diversified investment portfolio, bonds make a great addition for investors who desire to earn a steady stream of passive income. If you have fixed payment outflows, investing in bonds will give you the security to service these payments.
You’ll enjoy:
Higher yields than bank deposits
Steady passive income from periodic interest payments
A more diversified portfolio
A wide range of bonds to choose from
Things to consider when investing in bonds:
Tolerance for a certain level of risk, as coupon payments and the return of principal amounts are not guaranteed
An understanding of the terms and conditions attached to the bond
The impact a bond would have on your overall portfolio
Economic changes and other factors that may affect the issuer or bond
An investor may lose all or a substantial part of the investment if a bond issuer defaults on payments
Bond prices have an inverse relationship with interest rates – higher interest rates would result in lower bond prices and vice-versa
