The term fixed income generally refers to bonds issued – by Governments, agencies, or companies – with different maturities that often pay interest coupons, whereupon a stable source of regular income is generated. International Personal Banking offers you a vast selection of debt instruments of issuers public and private, with a variety of characteristics of credit quality, maturity and returns that will help it to meet personal investment objectives.
What are bonds?
Bonds are debt issued by the Government of a country (such as USA, Australia, Germany) and large corporations to raise funds in order to finance projects and companies. Bonds are flexible instruments that can provide profit and loss to long and short term. The terms of the bonds may vary from 1 month to 30 years or more.
When you invest in a bond, in reality, you are making a loan to the issuer of that bond. This will give you a regular income through the periodic coupon payments and the return of your capital at maturity.
As the majority of the bonds are marketable securities, you may retain a bond until maturity or before sale to the prevailing market price.
Why invest in bonds?
They represent a regular source of income.
The capital is revalued if you sell the bond when the price has appreciated (prices can also download).
Portfolio investment and its risk can be diversified, if it has a portfolio mainly consisting of shares.
Types of bonds
International Personal Banking offers you the option of purchasing different types of bonds. You can invest in the bond market in different ways, for example:
Bonds of fixed rate (Fixed Rate Bond)
The coupon interest does not change until the maturity of the bond.
Bonds floating rate (Floating Rate Bond)
The coupons are variable and are frequently adjusted to reflect current interest rates in the market. The advantage is that they provide investors a yield commensurate with the prevailing market rate. When investing in floating rate bonds, the investor assumes the credit risk of the issuer of the bond. Compared to fixed coupon and zero bonds, floating rate bonds are investments that pose less risk.
(Zero Coupon Bond) zero-coupon bonds
They do not pay interest during the term of the bond. The offer price is usually a significant discount (for example, purchase, US$ 70 and price at maturity over 5 years, US$ 100).
Redeemable bonds (Callable Bond)
The issuer has the option of bail bond before maturity in certain dates and at specific prices. Due to this type of rescue, the coupon rate is generally higher.
The bonds are affected by a series of risks, among them, the fluctuations of the interest rates, credit risk and prepayment risk. In general, when prevailing interest rates rise, the securities, stocks income fixed fall. The bonds face credit risk when you lower the credit rating of the issuer or credit capacity produce the drop in the price of the bond. High-yield bonds are subject to additional risks, such as for example, an increase in the risk of non-compliance and a greater volatility given the low credit quality of emissions. Finally, bonds may be subject to prepayment risk. As interest rates fall, an issuer may choose to borrow money at a low interest rate, at the time that liquid bonds previously issued. Therefore, the underlying bonds will lose investment interest payments and will be forced to be reinvested in a market where the current interest rates are lower than when the initial investment was made.