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Originally Posted by
mcmlxxvi
Bond X Uncle Vic,
Corp bonds like those genting etc, how much risk are they? If we go with companies in business for decades, lesser risk of folding right?
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From bonds.com.sg:
Corporate bonds
Companies can issue their own bonds and other debt securities, which can be bought and sold on the Singapore Exchange (SGX).
How are corporate bonds different from government bonds?
Corporate bonds have different investment considerations compared with government bonds. Some of the key differences are:
-Risk of a corporate issuer is not the same as the AAA rated Singapore government bond. Check the issuer's credit rating for the bond you are buying, but remember that rating agencies can get it wrong too.
-Corporate bonds may be secured over the issuer's assets (giving them priority in an insolvency situation), or completely unsecured, or somewhere in between (for example, unsecured senior bonds which rank ahead of unsecured creditors but behind secured lenders such as the company's bank). This means that even if the issuer is financially sound or highly rated generally, the specific bond may be riskier because of its repayment ranking compared with other debt.
-Corporate bonds may be redeemable early at the company's option, which affects the term of your investment profile. Likewise, the issuer may have an option to extend the maturity date. Special provisions might apply - for example, the interest rate may change or be reset.
-Corporate bonds can have a floating (or variable) interest rate which is set at a specific margin over a market interest rate (for example, bank bill rates), instead of the fixed coupon which is typical for a government bond.
These features can make corporate bonds more difficult to value compared with government bonds. On the plus side, a corporate bond will typically pay a higher coupon (yield) than a Singapore government bond because of the higher risks involved, and so may still be a suitable investment for investors who understand those risks.
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So many caveats... really must do homework to pick the right bond.
I'll try to be smart here - ask Uncle Vic the bond expert. Which ones have the lowest risks and best track record?