There are 2 main types of bonds:
1. Government Issued Bonds – Singapore Government issued Securities (SGS) by Monetary Authority of Singapore (MAS) on behalf of the Singapore Government. They can be either Treasury Bills (T-Bills) which mature in less than one year or SGS Bonds with maturities of 2, 5, 10, 15 and 20 years. However, T bills can only be bought through ATM, while you can trade SGS bonds of 2 years and above maturity on SGX. SGS bonds at this moment are AAA rated by S&P, the highest rating available. All SGS bonds pay coupons semi-annually.
2. Corporate Issued Bonds – Bonds issued by either statutory boards like Jurong Town Corporation (JTC) or companies such as SIA. Statutory board bonds can be considered almost similar grade to government bonds as the boards are actually government bodies. Companies such as SIA and F&N though are private/public listed companies which have to evaluate on their business performance and ability to service debt.
Bond Basic Terminologies
Issuer – Government body or corporation which issues the bonds
Principal / Face Value – Amount borrowed by issuer which is to be repaid in full to investor upon maturity (Normally denominated in $1000)
Tenure – Length of time from issue to maturity, indicates how long an investor has to hold the bond for if he bought it at issue and wants to hold it until maturity
Maturity -The date which the bond matures, by which the full principal will be repaid to the investor and the coupon payment ceases
Coupon – The interest payment on bond quoted in annual terms. The coupon may be payable quarterly, semi annually or yearly
Yield – Yields are used to determine the return on the bonds as the bond may be issued at a premium or discount. There are a few types of yields used to calculate returns, current yield, yield to maturity, yield to call, etc. I will discuss the calculation in more detail in Part 2 of this series
Zero coupon bonds – Some bonds do not pay any coupons. Instead, they are issued at a discount to face value and are redeemed in full upon maturity. Such securities include Treasury bills which are usually less than 1 year in tenure
Callable Bonds – The issuer may choose to delist the bond before maturity by repaying the principal in full, hence stopping the interest payments
Bond Quotation on SGX
As discussed earlier, bonds are now tradable on SGX, hence providing easy access for any individual with a stock brokerage account. Like Singapore stocks, bonds are also traded in values of $1000. Unlike stocks, bond names can look a bit cryptic to the uninitiated. Here we will discuss how to decode the bond names.
Quotation for SGS Bonds
Example: NY07100X 220901 10 – Buy $113.983 Sell $114.983
220901 -> Maturity date on 01/09/2022
07 -> Issued on 2007
1 Lot = 10 units, hence price = $114.983 X 10 units = $1,114.983 for 1 lot
Quotation for Corporate Bonds
Example: CapMallA2.15%140121 Buy $1.01 Sell $1.03
CapMallA -> Issuer CapitaMalls Asia
2.15% -> Coupon is 2.15%
140121 -> Maturity Date is 21/01/2014
1 lot = 1000 units, hence price = $1.03 x 1000 units = $1030 for 1 lot
Now you know that you can trade bonds on SGX and know how to read the bond quotations as well! For Part 2, we will discuss bond yield calculations as well as benefits and potential risks of investing in bonds. Stay tuned!
Message from IM$avvy Admin: Visit www.cpf.gov.sg > Calculators/Games to better plan your finances via the various calculators.
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