Bonds Questions


What are the factors to consider before investing in bonds?

(a) Investment objectives and timeline

Bonds are one of the instruments to diversify one’s investment portfolio. Depending on the issuer’s financial/credit standing, it can potentially be a good instrument for investment, earning regular interest income.

Customer will need to decide on his/her personal investment timeline in the selection of bonds based on the maturity dates. This affects the cash flow and the amount of risk the customer is prepared to bear. Generally, the longer the period of investment, the higher the return and risk involved. Longer tenor bonds are more sensitive to movement of interest rates and the customer who invests in these bonds may potentially make greater capital gains or losses if he/she sells off the bond investments before maturity.

(b) Features of the Bonds

There are different types and grades of bonds, from simple plain vanilla bond to those with call/put or convertible covenants.

(i) Issuer
Government or corporation that borrows by issuing bonds and repays investors with regular coupons.

(ii) Principal
Nominal value of the bonds issued or amount of money borrowed by the issuer that will be repaid to the investor upon maturity of the bond. Commonly also known as face value, or par value.

(iii) Maturity
The date where the issuer must return the principal or the face value to the investor.

(iv) Coupon
Interest payment made on a bond by the issuer in regular periods to repay the investor for holding the bond. Coupons are usually paid semi-annually.. For example, a $1,000 bond paying $40 a year has a coupon rate of 4.0%.

(v) Yield
It is the annualised return earned on a bond. It is calculated by dividing the coupon rate by the price of the bond and expressed in percentage terms.
Reference: www.sgx.com.

(c) Risks of investing in Bonds

Bond investment is not without risks; some of the risks are highlighted below for discussion:

Market risk
The value of the bond is subjected to interest rate changes, as well as demand and supply forces. Bonds, in particular, are sensitive to interest rate fluctuations and the prices of bonds move in opposite direction with interest rates. Despite this consideration, this risk is more pertinent if the investor decides to sell the bond and not hold it to maturity

Credit risk
Credit risk highlights the fact that the issuer may default on payment of the coupon, and even the principal amount if the issuer has problems meeting its obligations as promised. This is also known as default risk or issuer risk.

Liquidity risk
When there is a lack of buyers or sellers in the market, the investor may not be able to execute the trade or may be forced to trade at a value significantly away from the investor’s desired price. This can be deemed as liquidity risk.

Foreign exchange risk
The investor is exposed to fluctuations in foreign exchange rates when the investor trades in bonds that are denominated in a currency other than the functional currency of the investor. This may erode the returns on the bond investment.

Reference: SGX

Customers are advised to consider all risks by reading the prospectus/information memorandum/term sheet or seeking advice from a qualified financial adviser representative before they make a commitment to purchase any bonds.

What Is The Relationship Between Bond Prices And Bond Yields?

Bond prices and yields move in opposite directions. To illustrate this concept, let us assume that you are holding a bond of 1-year maturity that you bought at S$900. At maturity, you will receive your principle of S$1000. Assume the bond does not pay any coupon, so your yield-to-maturity is 11.1% at the moment:

[S$(1000-900) / S$900] x 100 = 11.1%.
If the bond price falls to S$850, the yield-to-maturity on this bond will be higher:
[S$(1000-850) / S$850] x 100 = 17.6%

Likewise, when the bond price rises to S$950, the bond’s yield-to-maturity will fall:
[S$(1000-950) / S$950] x 100 = 5.3%

Intuitively, if you bought your bond when interest rates were at 4%, and if interest rates rose to 6%, it would mean that you would be able to sell your bond at a lower price than what you paid for it. This is because investors can buy new bonds that will give them a higher yield (i.e. 6%). The price of your bond will therefore decline. On the other hand, if interest rates fall, investors will find your bond attractive relative to new bonds with lower yields. Therefore, the price of your bond will rise.

How does the settlement of Bond works?

This is an illustration on how the settlement of a bond works.

For example, SGD 250 000 Corporate Bond was bought at the price of 102.00 % (of the principal amount) on 23 March 2015. (Trading account to be pre-funded) It carries a coupon of 5.90% per annum and matures on 17 July 2017. The corporate bond was issued on 18 July 2014.

Additional information
Accrued interest: 68 days. Yield to maturity: 4.96%. Coupon payment: 17 Jan & Jul

The investment is as follows (Assume the day convention is 365 days):

Principal amount payable
= Principal x Bond price
= SGD 250,000 x 102.00/100
= SGD 255,000

Accrued Interest payable
= Principal x coupon x number of days after last coupon payment
= SGD 250,000 x 5.90/100 x 68/365
= SGD 2,747.95

Total amount payable by the investor client
= Principal amount payable + Accrued interest payable
= SGD 255,000 + SGD 2,747.95
= SGD 257,747.95

Charges
• There are no commission for bond trading. A percentage spread is included in the price of the bond quoted to the client.
• There is a custody fee of 0.05% p.a of the market value and GST payable monthly for bonds under custody with Clearstream/Euroclear.

Am I guaranteed to get the specific quantity of bonds that I placed an order for?

It depends on the availability of the quantity of bonds in the market at the time of purchase.

What are the Bond charges?

Administrative charges for custody of Bonds cleared via Clearstream / Euroclear
– 0.05% p.a on market value (charges on a monthly basis)
Administrative charges for custody of Bonds cleared via CDP
– Waived

Transfer Charges
Transfer-in charges (into Clearstream)
– USD$18 per bond/instruction (regardless of size)

Transfer-out charges (out of Clearstream)
– 0.5% of its nominal value

Transfer-out charges (out of CDP)
– 0.5% of its nominal value

Do I need to be Accredited Investor to purchase bonds?

Please note that corporate (OTC) bonds are only available for sale to Accredited Investors or in minimum denominations of $200,000 per transaction

For relevant forms and documents required to be an Accredited Investor, please click here.

Definition of an Accredited Investor

An Accredited Investor (Individual) is:
An individual with net personal assets exceed in value of SGD 2 million (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount. Loans, overdrafts and/or credit facilities which the individual has with other banks and financial institutions will have to be deducted from his gross personal assets to generate his total net personal assets;

or

Whose income in the preceding 12 months is not less than S$300 000 (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount.

An Accredited Investor (Corporation) is:
The company’s total net assets (i.e. assets minus liabilities) must exceed SGD 10 million (or equivalent in foreign currency) as determined by the most recent audited balance-sheet of the company.

What are the commission charges for wholesale Bond investing?

We do NOT charge brokerage or commission for wholesale bond investment. Indicative bond prices quoted are nett of fees.

 No commission
 No processing fee
 No platform fee
 No custody fee for bond cleared via CDP

How do I receive my proceeds after bond maturity?

Upon maturity, the proceeds will be credited into respective account’s ledger for bonds under Phillip custody. For bonds under CDP custody, proceeds will be credited into bank account linked to CDP account.

How do I receive my coupon payments?

For bonds under Phillip custody, coupon payment will be credited into account ledger.
For bonds under CDP custody, coupon payment will be credited into bank account linked to CDP account.

How to make payment for the bond?

Investor can simply do an EPS (Electronic payment for share) or deposit a cheque to their own trading account. Investors will need to pre-fund their account prior to bond execution.

What are the bonds that I can invest in?

Investors can access more than 200,000 bonds globally trade bonds denominated in 9 major currencies.
AUD, CAD, CNY, EUR, GBP, HKD, NZD, SGD & USD

Is the list of bonds on the website all Phillip had to offer?

Those bonds listed on our website are just some of the bonds we offer, as the list is exhaustive, do contact the bond desk if you are looking for any specific bond or have requirements for tenure or yield. Our Bond Specialist will be able to customise a list that meets your requirements.
Please contact our Bond Desk at 6212 1818 or email us at bonds@phillip.com.sg for more information.

Do I need to open a new Phillip account to invest in bonds?

No, you can use your existing Cash Management, Custodian or Margin Financing accounts to invest in bonds.
For online trading of bonds, only Custodian and Margin Financing accounts have access to online trading of bonds.

What is the minimum investment for Bonds?

The minimum investment for bonds will be subject to the bond issuance. For retail bonds, it is usually traded in multiple of S$1K. For wholesale bonds, it is usually traded in multiple of S$250K.
Please contact our Bond Desk at 6212 1818 or email us at bonds@phillip.com.sg for more information.

How can I check the price for specific bonds?

To check prices for specific bonds, investor may contact the desk directly at 6212 1818 for an indicative quote.

Must I hold the bond until maturity?

No, investor can always sell the bond on the market at market price anytime subject to demand and supply.
For perpetual bond/securities with no maturities, investors can either wait for the bond next call date subject to issuer call or sell the bond on the market at market price anytime subject to demand and supply.

How can I place a bond order?

Investor can contact our Bond Desk or Trading Representatives to place a bond order.
Bond Desk can be reached at 6212 1818 or via email us at bonds@phillip.com.sg for more information.