Understanding bonds
Bonds are debt or fixed income instruments issued by governments and corporates. They typically represent loans to the issuer to finance a project or company operations.
When you buy a corporate bond, for example, you are lending money to the company, which will typically pay you an interest rate or coupons.
Features
Diversification
Diversify your fixed income portfolios with a variety of bond solutions available to you.
Accessibility
Gain access to markets which may be difficult to enter.
Stable income
Garner coupon payments which help to create a stable and predictable income stream.
Types of bonds
Vanilla Investment Grade Bonds
The most basic version of investment grade bonds with a fixed coupon period and maturity date to provide a secure and stable income stream.
Tier 2 Contingent Convertible Bonds
A variation of vanilla investment grade bonds ranking junior to senior bonds and having features which could shorten maturity dates through optional calls. 
Sovereign / Government Bonds
Bonds issued on behalf of a variety of governments around the world and come with a fixed/floating coupon over a fixed maturity date.
Perpetual Bonds
Debt instruments with no maturity date which could have fixed or floating coupons. Although issuers have no obligations to repay principal, these instruments are typically offered with an option to call the bond and generally provide a larger coupon to compensate for longer duration.
Money Market Instruments
Short-dated debt instruments by governments, financial institutions or corporations.
Additional Tier 1 Contingent Convertible Bonds
A type of perpetual bond used by banks as part of their regulatory capital requirements to comply with Basel III norms. These are often the most complex bond structures, but often associated with larger coupons and a higher degree of correlation to equity.
Floating Rate Bonds
Debt instruments issued by governments, financial institutions or corporates without a fixed coupon. The coupons tend to float up or down with interest rates.
Types of bonds
Vanilla Investment Grade Bonds
The most basic version of investment grade bonds with a fixed coupon period and maturity date to provide a secure and stable income stream.
Tier 2 Contingent Convertible Bonds
A variation of vanilla investment grade bonds ranking junior to senior bonds and having features which could shorten maturity dates through optional calls.
Sovereign / Government Bonds
Bonds issued on behalf of a variety of governments around the world and come with a fixed/floating coupon over a fixed maturity date.
Perpetual Bonds
Debt instruments with no maturity date which could have fixed or floating coupons. Although issuers have no obligations to repay principal, these instruments are typically offered with an option to call the bond and generally provide a larger coupon to compensate for longer duration.
Money Market Instruments
Short-dated debt instruments by governments, financial institutions or corporations.
Additional Tier 1 Contingent Convertible Bonds
A type of perpetual bond used by banks as part of their regulatory capital requirements to comply with Basel III norms. These are often the most complex bond structures, but often associated with larger coupons and a higher degree of correlation to equity.
Floating Rate Bonds
Debt instruments issued by governments, financial institutions or corporates without a fixed coupon. The coupons tend to float up or down with interest rates.
Risks
The risks most often associated with bond investing are
- Interest rate risk
When interest rates rise, bond prices tend to fall. - Reinvestment risk
When interest rates fall, investors must repurchase the bond at lower rates than previously. - Inflation risk
When inflation is high, bond coupon payments can be eroded. - Credit/Default risk
The risk of an issuer not being able to repay an investor’s principal. - Ratings risk
Rating agencies may downgrade a bond issuer’s credit ratings, which could lower bond prices. - Liquidity risk
Low liquidity or inability to buy and sell some bonds may make prices more volatile.
Things you should know
Important notice and disclaimers
The above is provided for general information only and does not have any regard to the specific investment objective, financial situation and particular needs of any specific person who may read or receive this publication. This publication should not be regarded as an offer, recommendation, solicitation or advice to buy or sell any investment product and shall not be transmitted, disclosed, copied or relied upon by any person for whatever purpose. Any description of investment products is qualified in its entirety by the terms and conditions of the investment product and if applicable, the prospectus or constituting document of the investment product. Nothing in this publication constitutes accounting, legal, regulatory, tax, financial or other advice. If in doubt, you should consult your own professional advisers about issues discussed herein.
The information contained in this publication, including any data, projections and underlying assumptions, are based on certain assumptions, management forecasts and analysis of known information and reflects prevailing conditions as of the date of this publication, all of which are subject to change at any time without notice. Although every reasonable care has been taken to ensure the accuracy and objectivity of the information contained in this publication, United Overseas Bank Limited (“UOB”) and its employees make no representation or warranty of any kind, express, implied or statutory, and shall not be responsible or liable for its completeness or accuracy. As such, UOB and its employees accepts no liability for any error, inaccuracy, omission or any consequence or any loss/damage howsoever suffered by any person, arising from any person acting or refraining from acting in reliance on any information, opinion, prediction or valuation contained herein.
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