Bonds FAQ

Bonds are issued by governments and companies in order to raise money. 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. Many fund managers use bonds as a stable element in unit trust products.

Bonds are a form of borrowing. They are debt securities issued by borrowers such as governments or companies seeking to raise funds from the financial markets. They are also known as fixed income securities because most bonds pay a steady stream of interest income at periodic intervals throughout the life (also known as the term or tenure) of the bond. This interest is known as the "coupon" and the coupon rate is expressed as a percentage of the principal, known as the "face" or "par" value of the bond. Bond prices are usually expressed as a percentage of face value. Upon maturity, bonds are redeemed at face value and bondholders are paid 100% of face value.

Some bonds do not offer coupons at all - these are known as "zero-coupon bonds" and are priced at a discount to their face value. At maturity, you will receive the face value (which includes the accrued interest on the note).

The yield on a bond depends primarily on the credit quality of the bond issuer. In any local market, the highest quality bonds are usually government bonds. They are usually followed by quasi-government or government linked entities, banks and then companies.

Generally, bond prices are inversely related to interest rate movements. A rise in interest rates could see a fall in bond prices. The price adjustment compensates the buyer for the coupon which is lower than comparable market rates. Similarly, if rates fall, the buyer pays a higher price for receiving a coupon that is higher than comparable market rates. Investors who choose to sell their bonds in a rising interest rate environment will suffer a capital loss if bond values are now below the price they paid. On the other hand, if investors continue holding the bond, they will incur opportunity cost as their funds could have been invested in higher yielding instruments.

Market price fluctuations may not matter as much for investors who buy and hold as they will receive interest throughout the life of the bond and principal at maturity, provided there is no issuer default. Investors in bond funds, on the other hand, may be affected by interest rate movements as these will have impact on the funds' net asset value and hence the price at which investors can redeem their units.

Bonds may be attractive for investors who want a source of regular income or to diversify their portfolio of investment assets. A diversified portfolio helps to reduce the risks caused by a concentration of similar assets. By including assets whose values do not always move in the same direction or by the same degree as other assets in the portfolio, you may give up some gains but also reduce some losses in your portfolio. For example, certain market conditions which do not support the price of shares, may actually be positive for bonds.

Bonds from HSBC can be categorised by:

• Types of issuers: - Corporate bonds, supranational bonds and government/quasi-government bonds
  
• Fixed rate bonds, floating rate coupon bonds
  
• Available in multiple currencies:- USD, AUD, CAD, CNH, EUR, GBP, NZD and SGD
  

HSBC offers you a wide selection of investment grade and selective range of high-yield bonds with tenors of up to 30 years.

Some of the basic criteria are listed below:

• Premier customers.
  
• Accredited investors.
  
• Passing the Customer Account Review (CAR), where applicable.
  
• If this is your first time investing in bonds with HSBC, you would be required to contact your Relationship Manager to do a Goal Planner Journey and where applicable acknowledge a Risk Warning Statement.
  
• However, some bonds have additional criteria; please check with your RM to ascertain how you might meet them.
  
• Please note that this product is not eligible for US citizens/residents, Canadian residents and Saudi Arabian residents.
  

If you already have an HSBC Investment Services/Securities account, you can simply contact your Relationship Manager to execute your bond order. We also offer bond trading services through our branches. To open an Investment Services/Securities account, simply visit any HSBC branch in Singapore.

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. Under normal market circumstances, HSBC will repurchase bonds at the prevailing market price, subject to the liquidity of the bond. However, the buying price offered by HSBC may differ from the original selling price due to changes in market conditions.

In addition to the above risks, foreign listed products expose you to additional potential risks due to legal and regulatory differences between the foreign regime and the local regime. For example, there may be differing disclosure standards and investor protection.

Foreign exchange risk and tax liabilities may also be present. You should be aware that political, economic and social factors in the foreign country/region may influence the domestic market and impact the value of the investment. The extent of risks will also differ depending on the jurisdiction in which the foreign product is listed.

Currently, HSBC absorbs the monthly custody fees but reserves the rights to make any changes to said fees. Customers will be informed at least 30 calendar days prior to any implementation of fees or charges. There will also be no transfer-in fees. However, there will be a transfer-out fee of USD100 (USD109 inclusive of GST where applicable) per bond in addition to CDP charges (if transfers are made to CDP).

You can get a snapshot of your holdings on your Wealth Dashboard via HSBC Online Banking.