Issue 2016/11

About Bonds:

  1. Bonds are a form of borrowing. They are debt securities issued by borrowers such as governments or companies seeking to raise funds from the financial markets. They are also known as fixed income securities because most bonds pay a steady stream of interest income at periodic intervals throughout the life (also known as the term or tenure) of the bond.
  2. Bonds may be attractive for investors who want a source of regular income or to diversify their portfolio of investment assets. A diversified portfolio helps to reduce the risks caused by a concentration of similar assets.
  3. Generally, bond prices are inversely related to interest rate movements. A rise in interest rates could see a fall in bond prices. The price adjustment compensates the buyer for the coupon which is lower than comparable market rates. Similarly, if rates fall, the buyer pays a higher price for receiving a coupon that is higher than comparable market rates.
  4. Bonds as with all investments come with risks. The most serious being the bond issuer defaulting on the promise to pay the coupon rate as well as the principal sum at the end of the tenure of the bond.

Reference Article from MoneySENSE

How Singapore’s Not-Really-Rich Have Been Burned by Swiber Bonds

When Elaine Tham signed an “accredited investor” form with her bank in Singapore two years ago, she took a fateful step toward losing all the money she had set aside for her children’s education.
Based on her financial profile and investment priorities — her need for S$150,000 ($110,000) to pay university fees — a local branch of HSBC Holdings Plc had initially categorized her as a “medium risk” investor. But because the value of her property and car entitled her to “accredited” status, a category reserved for wealthy investors, Tham says she was persuaded to take a riskier path. She agreed to invest S$250,000 in the bonds of a small Singapore energy-services company, Swiber Holdings Ltd., which said in August that it won’t be able to repay its bondholders.

Reference Article from Bloomberg