Bonds and other fixed-income securities play a very important role in an investor’s portfolio. Owning bonds helps to diversify a portfolio, as the bond market doesn’t rise or fall alongside the stock market. More important, bonds are generally less volatile than stocks.
If you have medium- to long-term objectives and want high yields, then bonds are the ideal investment solution for you.
How Do Bonds Work?
When companies or other entities need to raise money to finance new projects, maintain ongoing operations, or refinance existing debts, they may issue bonds to investors. The borrower (Issuer) issues a bond that includes the terms of the loan, interest payments that will be made, and the time at which the loaned funds (Bond Principal) must be repaid (Maturity Date). The interest payment (Coupon Payment) is part of the return that bondholders earn for loaning their funds to the issuer.
Characteristics of Bonds
Characteristics of a Bond:
- Face Value is the money amount the bond will be worth at maturity; it is also the reference amount the bond issuer uses when calculating interest payments.
- Coupon Rate is the rate of interest the bond issuer will pay on the face value of the bond, expressed as a percentage. (e.g. a 5% coupon rate means that bondholders will receive 5% x $1,000,000 face value = $50,000 annually).
- Coupon Dates are the dates on which the bond issuer will make interest payments. Payments can be made in any interval, but the standard is semi-annual payments.
- Maturity Dat
e isthe date on which the bond will mature and the bond issuer will pay the bondholder the face value of the bond.
- Issue Price is the price at which the bond issuer originally sells the bonds.
Corporate Bonds – A corporate bond is a debt security issued by a corporation and sold to investors.
Sovereign Bonds – A sovereign bond is a debt security issued by a national government.
- Corporate bonds are issued by companies.
- Municipal bonds are issued by states and municipalities. Some municipal bonds offer tax-free coupon income for investors.
- Government bonds such as those issued by the U.S. Treasury. Bonds issued by the Treasury with a year or less to maturity are called “Bills”; bonds issued with 1 – 10 years to maturity are called “notes”; and bonds issued with more than 10 years to maturity are called “bonds”. The entire category of bonds issued by a government treasury
areoften collectively referred to as “treasuries.”
More of corporate Jamaica is coming to appreciate the value of going to bond markets, and leveraging their know-how and income stream
Classed based on the date when the principal has to be paid back, they are rated as short, medium or long term. The credit quality of the instruments is also a defining factor, as any challenges in repayment would have major consequences.
Bonds are thus a way for you to lend money to a company, with the opportunity for being rewarded for taking the risk. Come to us for expert guidance to navigate the risk/reward balance, and find out how these instruments can play a part in a long term wealth building portfolio.
The government issues bonds to help covers its financing needs. Issued in Jamaican currency, these debt instruments are usually fixed interest.
Providing a steady income stream in your portfolio at relatively low risk, this is a traditional investment
GOJ and other Sovereign Global Bonds
Issued by the Jamaican and other governments, these international debt securities raise foreign currency in the international market. They thus allow you to hedge against devaluation, while earning competitive returns.
These bonds are ideal for investors who need a steady stream of hard currency returns over the medium to long term and help diversify your risks. We will help you navigate the intricacies of this market.
For the sophisticated investor who is able to handle the risk, these instruments can produce good returns
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