Invest in Singapore Bonds or Stocks?

Which is better? Singapore bonds or stocks? The answer, again, depends on the individual.

I have to admit I have never invested in bonds. I just can’t find the right logic for it when I compare it to stocks.

So for this bonds section, I’m providing pure information I have gathered from various sources on Singapore bonds.

To find out if bonds are for you, let's look at some aspects of the bonds sold in Singapore.

Types of bond in Singapore

The main difference between a bond and a stock lies in the type of ownership they represent.

Bonds represent debt ownership while stocks represent equity ownership in the investment vehicle.

These debt instruments are issued by the government of Singapore or a company, where the issuer owe bond holders a debt and is obliged to pay interest and the principal at maturity date.

The Singapore bonds market comprises of

Factors affecting bond prices

Although bond prices are determined by the forces of demand and supply, participants may look at several factors to assess the bonds.

  • Expectations of future interest rate levels and currency movements

    Usually, bond prices and interest rates are inversely related. For example, if your bond yield is 5 percent but interest rates rose such that newly issued bonds pay a higher yield, the price of your bond may fall as it becomes less attractive to investors.

  • Issuer's credit rating

    A bond issuer with low ratings from rating agencies (S&P, Moody's, Fitch, etc) may carry a higher risk of default. The low-rated issuer may have to offer a higher yield in order to attract investors.

    An upgrade in the issuer's credit rating with its bond yield remaining the same may lead to an increase in the price of its bond.

Bonds that are at prices above their par value are selling at a premium, while those with prices below par value are selling at a discount.

Risks associated with bonds

Even though Singapore has a very strong credit rating with minimal probability of default on its local currency debt obligations, it is prudent for an investor to note some risks associated with bonds.

  • You may lose your principal should the issuer default
  • Bonds redeemed prematurely may be sold lower than your purchase price
  • Lack of Liquidity

Possible benefits from bonds

  • Obtain regular income through periodic payment of interest on the principal (except zero-coupon bonds and T-Bills)
  • Achieve portfolio diversification as bonds may not move in tandem with stocks
  • Bond holders are debtors to the issuer and have priority over shareholders to assets in the event that an issuer faces bankruptcy

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