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Bond Investment

Bond Investment

Balancing risks to nail investment targets

Bond Investment Bond Investment

Emperor Securities Limited offers a range of bond products to its customers, including government bonds, corporate bonds, perpetual bonds, etc. These bonds – issued by different issuers across industries, sectors, geographies and denominated in several currencies – provide customers with a comprehensive set of options to personalize their investment strategy. Dedicated to help you meet your objectives, our team of professionals build investment portfolios that reflect your investment goals and respect your risk appetite.

Emperor Securities also work closely with Emperor Corporate Finance to help companies raise funds by underwriting bonds issuance. So far, we have assisted lots of listed companies by issuing fixed income instruments.

What is a bond? 

A bond is a type of loan issued by a company or a government entity to raise money from investors. The issuer of a bond promises to repay the loan at a future point in time – known as the maturity date. In exchange, the investors (or bondholders) receive regular payments i.e. a “fixed income” before getting the amount of the loan back once the bond reaches the maturity date. Therefore, traditional bonds are also called fixed income products.

The different types of bonds 

Bonds are both listed and unlisted. You can buy bonds from issuers during their Initial Public Offering (IPO). A well-known example is the issuance of ibonds, which were sold to retail investors by the Hong Kong government as a Hong Kong dollar inflation-indexed saving instrument. When bonds are listed on the stock exchange, you can trade them just like stocks. When bonds are unlisted, you have to trade them on the secondary market using intermediaries like Emperor Securities.

Government Bonds
Governments borrow money to fund various ongoing budget requirements, such as infrastructure, defense and public pensions. These bonds are widely seen as relatively low risk since governments are generally more financially stable than private companies.

Corporate Bonds
Companies issue bonds for many purposes, from financing their entry into a new market to funding the building of new premises. While corporate bonds tend to be less secure than government bonds, the risk varies depending on the type of issuer the investor lends to.
 

Advantage

Flexible investment period  Investor can choose bonds with different maturities according to their liquidity needs 
Stable return   Bonds provide regular income, so can help investor balance their portfolio’s overall risk. 
Different types of bonds are available on the market  Investor can purchase bonds with different coupon rates, settlement currencies, investment grades and tenors according to their objectives. 
Invested amount is refundable at maturity  If the bond issuer does not default, investors can get their money back on that date 
Risk Diversification   Bonds are considered to be relatively low risk investments, which can help diversify an investor’s portfolio 

 

Main Risk associated 

Credit Risk 

The major risk of investing in bonds is that the issuer fails to repay the coupon or principal on a specified date, resulting in a default. To help assess this risk, independent credit rating agencies assign a credit rating to bonds to reflect the issuer’s repayment ability as estimated by the issuer’s financial status. Ratings can generally be divided into investment grade and non-investment grade. Those lower than Standard & Poor's BBB- rating are considered non-investment grade bonds and are also known as high-yield bonds.

The higher the rating of a bond, the better the fundamentals of the issuer. Such a lower default risk means a company can raise capital at a lower cost. High-yield bonds, on the other hand, have a higher default risk than investment-grade bonds, so coupons are generally higher.

Therefore, investors looking for higher potential returns can consider investing in high-yield bonds. Meanwhile, investors looking for lower risk exposure can select safer investment-grade bonds.
 

Interest Rate Risk  Rising interest rates can cause Bond price to fall. Selling bonds before maturity as interest rates rise may result in losses
Liquidity Risk  Some bonds may be less liquid in the secondary market and thus difficult to sell 
Other related Risk  These include early redemption and inflation risk 

 

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