Singapore Bond Market: Types and Factors to Consider

August 14, 2019
August 14, 2019 TheFinLens

Singapore Bond Market: Types and Factors to Consider

Investing in Singapore offers multiple choices, like bank deposits, real estate, stocks and also bonds. Buying bonds in Singapore requires some knowledge and information of the different types of bonds and how these can benefit you. Debt obligations issued by companies or organizations are represented by bonds to the investors. Owning a specific bond of the bond issuer means investment in a bond. The issuer of the bond makes regular payments of the interest right till the bond matures. Upon maturity, the issuer returns the principal.

Types of bonds in Singapore:

Buying bonds in Singapore can be apt if you have a clear understanding of the types of bonds here. Listed below are some of the most common bonds in Singapore.

* Corporate Bonds:

The corporate entity issues the corporate bonds. The risk involved with these bonds is different and depends on the corporate entity issuing these. The risk involved is determined by analyzing the finances of the specific company. You get clear information on how the said company services the bond obligations. Investors can also depend on the credit rating of the bond to determine the risk involved.

In case two bonds pay similar rates of interest, the investor needs to opt for the company with strong fundamentals before buying bonds in Singapore. Entities issuing bonds with a higher risk tend to pay a higher rate of interest when issuing a bond.

There are chances of even the safest bonds deteriorating over a period of time as environment is ever-changing in the corporate world.

*Singapore Government Securities (SGS):

The bonds issued by the government of Singapore are the SGS bonds. These include SGS bonds, Treasury-bills (T-bills) and Singapore savings bond (SSB). These bonds are risk free as they are issued by the government. Buying bonds in Singapore can be considered ‘safe’ when you opt for the SGS bonds.

singapore bond market

*Bond ETF:

Through the bond ETF an investor is able to invest in a basket of bonds. The benefit of this bond ETF an investor enjoys a portfolio of bonds which is diversified without actually buying a specific one in a direct manner or even considers the reinvestment of cash flows from the bonds which have expired.

The ABF Bond is one of the bonds listed on the Singapore exchange. The ETF invest in bonds which are of a high quality.

Factors to consider for investing in Bonds:

Buying bonds in Singapore can work out apt if specific factors are taken into consideration.

  1. Bonds Liquidity:

You need to be ware that bonds are less liquid as compared to stocks which can be easily sold or even bought on the exchange. Thus, before buying a bond in Singapore it is important that you consider the liquidity of the specific bond so that there are no issues if you need to sell this off urgently.

Liquidity is no issue with the Singapore savings bonds as you have a guarantee by the government that the redemption of the bond at any time is possible with a guarantee of the principal.

Selling listed or unlisted corporate bonds is possible through the exchange in which these bonds are listed. There is no guarantee of recovering the total amount invested as there is a possibility of fluctuation in the value of the specific bond in accordance to the conditions of the market. Bonds need to be sold only in the exchange like stocks if you find another buyer willing to buy these.

  1. Period of Maturity:

Before buying a bond in Singapore you need to be aware of the period of maturity as these have a lifespan which is finite. You need to ensure that the maturity of a bond is aligned to your personal investment horizon.

  1. Returns and Risks:

It is important to be aware that a bond can be less risky as compared to a stock only if compared to the stocks of the same company issuing these.

You can expect higher returns if you are buying bonds of a company with weak fundamentals. The risk is higher here.

Before buying bonds in Singapore, an investor needs to consider the risk tolerance rather than work on assumptions.

How to invest in Bonds:

Buying bonds in Singapore is possible even with a few hundred dollars. You need to seek help from qualified professionals if you do not understand the working of any specific bond. You have specific bonds for retail investors and specific ones for accredited investors.

Your investment portfolio needs to include bonds and stocks. With stocks offering volatility, investors can increase the portfolio of the investment when the going is good. Buying bonds in Singapore can offer the stability during the bad times. An investor can enjoy of both the worlds by investments made in stocks and bonds in the right proportion. This is best left to qualified professionals dealing in finance.

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