Bonds are issued with the purpose to raise funds to finance issuer’s investment projects, production expansion, repayment of other debts, cover budget deficit (in case of sovereign bonds) and other purposes.
Bonds have face value and maturity term.
Bonds price is determined in percentage to its face value.
Return on bonds is combined from:
- Periodically paid coupon
- Price difference
Bonds can be divided by their maturity term:
- Short term (up to 3 years)
- Medium term (from 3 to 5 years)
- Long term (from 10 to 30 years)
Main credit agencies Moody’s Investors Service, Standard & Poor’s Corporation and Fitch assign credit ratings to bonds. Each agency assigns credit ratings under their own method. Method includes in depth financial analysis of the issuer, its management structure, economic factors and also additional sources of issuer’s income, which all can be a source of guarantee for bonds payments.
Bonds yield depends on issuers’ credibility.
Bonds either can be held till maturity or sold at any time before its expiration at market price.
Investments in Bonds
Investments in bonds (debt obligations of companies) are primarily advised for conservative investors, which are more risk averse and with yield expectations slightly above the bank's deposit rates in corresponding currency.
NORVIK BANKA gives clients the opportunity to conduct transactions with the following types of bonds:
Bonds are mainly traded on OTC (Over the Counter) market and only few countries allow bonds trading on the exchange. Norvik Banka proposes to its client’s best execution at best prices both for bonds and Eurobonds of issuers from developed countries and emerging markets (including issuers from Baltic and Scandinavian countries) and for debt securities of CIS countries, which are most popular among our clients.
Advantages of Bonds
The main advantages of bonds are:
- higher return in comparison to deposits
- moderate volatility: market prices for bonds are subject to comparatively small fluctuations
- stable income: interest on bonds is paid regularly
- high liquidity: if desired, bonds can be easily sold on stock market
- certainty: the date of repayment of the bond by the borrower is known beforehand as well as the bond face-value that will be received by the investor upon its repayment
- reliability: market prices on bonds usually do not experience big fluctuations
One of the main risks in bonds is issuer reliability and ability to service its debt.
The following should be noted among the side benefits of brokerage service by NORVIK BANKA on bond markets:
- transactions with odd lots starting from USD 50 000 at face value
- additional financing of bonds operations, allow to increase profitability on investments ( the bank can finance up to 90% from deal amount depending on issuers reliability)
Trade in Bonds
Bonds of more than 300 000 issuers are circulating in the world. Over 50% of the volume of all bonds in the world are floated by governments and more than 80% of these bonds are denominated in three main hard currencies (USD, EUR, JPY). Bonds of more than 150 issuers from CIS countries are traded on international markets, which are denominated in hard currencies (Eurobonds).
Bond trading is available within the classic Brokerage Service by NORVIK BANKA.