Investing in bonds and fixed income investments

In an earlier blog post, I mentioned that I had allocated more funds into fixed income investments (loosely categorised as bond-like instruments).

The latest addition was Singapore Airline 3.035% bonds with maturity on 11 April 2025 (8 years later). Interest payment is 3.035% per annum to be paid semi-annually. This bond is unsecured.

Besides this, I had OCBC 4.0% Non-cumulative, Non-convertible, Non-voting Class M Preference Shares. Dividend is fixed at 4.0% per annum payable semi-annually. The preference shares are callable 2018 and 2022.

My investments in bonds that are traded on the Stock Exchange of Singapore include:

  1. DBS Bank 4.7% Non-cumulative Preference Shares (Coupon or interest is 4.7% per annum)
  2. CapitaMall Trust retail bonds 3.08% 7-year bond till 2021 (Coupon is 3.08% per annum)

The good thing when investing in bonds is receiving the fixed interest income on a regular interval. The major risk is the possibility of default by issuers of these bonds. Bankruptcy of these issuers can lead to you losing the capital sum of the investments. There were several cases of defaults of some corporate bonds in the past year.

If investors want a lower risk environment in investing in fixed income investments, there is the 10-year Singapore Savings Bonds (SSB). The latest SSB (issuance date 1 June 2017) has average annual return of 2.16% per annum when held to maturity.

When a coupon rate (interest rate) of a bond is high, the risk of investment is higher. The coupon rate must commensurate the higher risk taken by the investors to entice them to lend money to the corporation. So when one invests in bonds, it is important to look beyond the coupon rate. The business risk of the borrower is one area that require careful study.

Copyright © 2017, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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4 Responses to Investing in bonds and fixed income investments

  1. Mich says:

    Can you share how one can invest in the OCBC 4.0% Non-cumulative, Non-convertible, Non-voting Class M Preference Shares?

    Is it purchase off SGX or through other means.

    • limkimtong says:

      I got a Relationship Manager of a bank to arrange this purchase.

      • Mich says:

        Does that means that I can go to a bank and request for it ? Or one has to have a priority account with the bank (eg DBS Treasures etc).

        Thanks in advance for the information.

      • limkimtong says:

        It was a significant undertaking and one must be assessed by the bank as suitable to invest in this particular investment, with understanding of the risks involved. It is unlike retail bonds quoted on the Singapore Exchange.

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