| 1. What are bonds? |
| Bonds are debt issued by governments and companies in order to raise money, and are a relatively safe investment. Bonds are usually seen as a long-term investment and can have terms of up to 30 years, although five to 10 years is the normal investment period. |
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| 2. Are bonds principal protected instruments? |
| Strictly speaking, they are not. Investors are always subject to the credit risk of the issuer, notwithstanding that be a AAA rated issuer. However, the merit of bonds vs equities is that investors are only subject to the default risk of the issuer should the investor prefer to buy and hold investments. Of course, if investor trades before maturity, he will be subject to market risk. |
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| 3. Are bonds liquid investment instruments? |
There is a well-developed secondary market for fixed income instruments globally and most investment grade bonds. HSBC has professionals in Hong Kong, Tokyo, Paris, London and New York specialising in trading different types of credits.
However, liquidity is always subject to market conditions, eg economic and political events, limits on specific issues, etc and issue size. Hence, a US$200 million bond issue would be less liquid than a US$1billion issue, all other things remaining equal. Usually government bonds are the most liquid while structured notes are the least liquid.
Should you choose to sell bonds, lease note that it takes take T+N [please define] for settlement of cash/scrip. The exact day depends on the type of bond. |
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| 4. How do I benefit from bond investments? |
By investing in bonds, investors can be benefit from: - Regular income - you can receive regular income as generated by the interest paid throughout the life of the bond
- Higher return - bond yields are usually higher than time deposit rates with similar maturity
- Potential capital gain - you can also benefit from capital appreciation when bond prices move up
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| 5. How much does it cost to invest in bonds? |
The cost varies amongst service providers. Some build in margins on prices and charge custodian fees, while others do not charge custodian fees. However, investors must have a custodian account to hold bonds and should have a custodian to handle settlement issues on their behalf.
At HSBC, you can enjoy a preferential rate when investing in bonds. All charges on the buying and selling of bonds, interest collection as well as redemption at maturity are currently waived. You just pay the safe custody fee of 0.05% of nominal value per annum with a minimum charge of HK$150 half-yearly. |
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| 6. Do I have to hold bonds until maturity? |
No.
You can sell your bond before it matures and benefit from capital appreciation if the selling price is higher than the original buying price. HSBC will repurchase bonds that you bought through us based on the prevailing market price under normal market circumstances. However, the buying price offered by HSBC may differ from the original selling price due to changes in market conditions. |
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| 7. What are Central Moneymarkets Unit (CMU) and Euroclear? |
| Both CMU and Euroclear are clearing and settlement facilities for debt securities. While the CMU is established and governed by the Hong Kong Monetary Authority (HKMA), Euroclear is owned by its active users. |
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| 8. How can I collect my interest payments from bonds? |
| As all bonds purchased through HSBC are under our custody and nominee services, all interest earned will be credited to your settlement account on the coupon payment date. |
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