Bonds
Terminology
B
Blue Chip Companies
Companies that are considered to be well-established and more financially-sound.
Bonds
Bonds are loans issued by the government or a corporation in exchange for money from an investor. In return, the investor will receive coupon payments until repayment at the maturity date.
Bond Funds
A fund that invests in a portfolio of bonds. There is no guaranteed repayment of principal or payment of coupons, and usually does not have a fixed maturity.
Bond Index
A hypothetical portfolio of bonds that allows for the measure of the performance of that particular bond segment.
C
Callable Bond
A bond where the issuer has the ability to redeem the bond prior to maturity.
Capital Appreciation
The increase in price between the purchase and sale of the bond.
Coupon
A coupon is the fixed interest rate of a bond relative to its face value, where payments are made at fixed periods.
Credit Rating
A measure of the ability of a particular bond issuer to carry out its financial obligations.
D
Default
The failure or inability of an issuer to pay coupons and/or bond principal.
Discount
Purchasing the bond at a price less than the face value.
Dividend
A portion of the profit of a company that is paid on to shareholders. The payment of dividends to shareholders usually ranks below the payment of coupons to a firm’s bondholders.
E
Exchange-Traded Funds
An Exchange-Traded Fund (ETF) is a fund that invest in bonds or stocks, but trades like a stock. ETFs usually track the performance of a certain index (eg. a bond index). It does not guarantee repayment of principal, fixed coupons, and usually does not have a maturity. The price of the ETF also changes at any time of the day. Investors may receive dividends from ETFS.
F
Face Value
Face value is the amount of money received at maturity. It is also called par value or principal. However, the face value may not necessarily be the price of the bond.
Investment-Grade
Bonds that have a lower risk of default and carry a lower interest rate.
J
Junk Bonds
Bonds that have a higher risk of default, but carry a higher interest rate.
M
Maturity
The date on which the bond issuer repays the bondholder the principal amount.
P
Premium
Purchasing the bond at a price more than the face value.
S
Secondary Market
After bonds have been bought from the government or a corporation, they can be bought or sold before maturity in the secondary market.
T
Treasury Bill
A Singapore Government Security with a maturity that lasts between 3-12 months.
Y
Yield
The annualised return an investor expects to receive from a bond, calculated simply by the coupon (interest) divided by the price of the bond.
Yield Curve
The curve showing the relationship between yield and maturity among similar bonds. Usually, the Yield Curve is upward sloping, which means that longer maturity bonds command higher yields.
Yield Maturity
A measure of the expected return for a bond if held to maturity expressed as an annualised yield figure, which takes into account the bond’s current market price, the coupon rate, time to maturity as well as the bond’s face value. The measure also assumes that coupons are reinvested at the bond’s current yield.