Maybank - Bonds & Fixed Income

Why invest in Bonds and Fixed Income Securities with us?

Bonds and fixed income securities help in portfolio diversification. They can also help you in planning your potential income flows. As a Maybank Securities client, you have the best of both worlds; the convenience of an online trading platform and the option of speaking to a friendly voice at the end of the line should you wish to. The choice is yours.

Portfolio Diversification

Bonds and fixed income securities belong to a different asset class from equities. They potentially allow an investor to diversify his or her portfolio among various asset classes in order to reduce the overall investment risk.

Predictable Income Stream

Your income stream from the investment is predictable, as you will know how much interest you can expect to receive, how often you will receive it and when your principal will be repaid.

Unlock Investment Opportunities with Fixed Income Margin Financing

Take advantage of investment opportunities by pledging your eligible fixed income securities as collateral. More details on Margin Financing.

Universe of Over-the-Counter (OTC) Bonds and Fixed Income Securities

In addition, you will have access to the universe of OTC bonds and fixed income securities that offer clean pricing, tighter bid/offer spreads and better liquidity. You can now participate in (a) primary issues and (b) secondary trading of bonds and preference shares (perpetuals) in the OTC market.

Your Trading Representative can also help you access the following information:

Availability of new primary issues of bonds and fixed income securities
Availability of secondary issues of bonds and fixed income securities
Two-way (bid and ask) prices

How it Works

Most OTC bonds and fixed income securities are open to ALL investors, subject to minimum trading denominations.

Types of Bonds and Fixed Income Securities:

i. Listed on SGX-ST

Subject to minimum trading denomination

ii. Over-The Counter (With Listed Tranche on SGX-ST)

Subject to minimum trading denomination

iii. Over-The-Counter (Without Listed Tranche on Exchanges)

Please note that OTC bonds and fixed income securities are quoted on a clean price basis, where accrued interests are computed separately.

Risks of Investing in Bonds and Fixed Income Securities

The returns on bonds and fixed income securities are driven by several factors including but not limited to market risks, issuers' credit risks, liquidity risks and call risks.

Investors should consider the following risks which are applicable to investing in bonds or fixed income securities:

Market Risks

Similar to stocks, the value of bonds or fixed income securities fluctuate with changing market factors such as interest rates, inflation rates, exchange rates and commodity prices. Investors should also be aware of liquidity risks, especially when deciding to sell a bond or fixed income security prior to the maturity date.

Credit Risk

This risk involves the issuer not being able to meet its obligations in terms of coupon/dividend payments or not being able to repay the principal amount to the investor at maturity. This is also known as issuer risk or default risk.

Liquidity Risk

This is the risk of not being able to execute a trade at the time and price that the investor so desires. It describes a situation where the investor is forced to accept a significantly discounted price when he wishes to sell due to the lack of ready buyers or sellers (lack of liquidity).

The OTC market is often preferred due to the presence of liquidity. OTC bid-offer spreads are also more favourable due to the difference in the price quoting system for OTC bonds (clean price) and SGX-ST listed bonds (dirty price).

Foreign Exchange Risk

When the bond or fixed income security is priced in a currency that is different from the investor's functional currency, the investor is exposed to foreign exchange fluctuations, which will either enhance or erode the investment returns on the bond or fixed income security.

Call Risk

This is the risk that the bond or fixed income security with a callable feature is called by the issuer. The lower the market interest rate, the higher the possibility that the issuer will call back the bond or security so that he can re-issue the debt at a lower cost. This is disadvantageous to investors because of the uncertainty of cash flow and potential exposure to reinvestment risk at a lower interest rate.

Margin Call Risks

If you are financing your bonds or fixed income securities using margin financing, a margin call might be triggered in cases of adverse price movement or collateral valuation downgrade due to adverse credit events. You will be required to provide additional cash or marginable securities as collateral or liquidate positions within the specified period, failing which we will automatically liquidate outstanding positions to bring the margin ratio to 140% or above. If the OTC bond position has to be liquidated, it will be liquidated per tranche of either SGD250,000 for SGD issues or USD200,000 (or equivalent) for other currency issues.

Not a Maybank Securities client yet?

Open an account

Leave your contact details and we will contact you.

Visit our Customer Service Centre

FAQs

What are bonds and fixed income securities?

Bonds and fixed income securities are debt instruments issued by governments and corporations.

Conventional bonds confer ownership of a debt on the investor
Shariah–compliant bonds grant the investor a share of an asset.

These instruments may be listed or unlisted.

Preference Shares
Within the category of fixed income securities, preference shares are hybrid instruments, comprising properties of both equity and debt instruments. Preference shares usually carry a fixed preferential rate of dividend. They are usually non-voting shares. Unlike bonds, there is no maturity date but the issuer can repay the principal in full on the "call date".

Generally, in the event that the issuing company is liquidated, bondholders will have a higher priority claim on the company's assets, followed by the preferred shareholders. Only after these two groups of investors have been repaid, will the common shareholders of the company recover anything from the estate of the liquidated company. Preference shares are dealt on both listed and unlisted platforms.

Islamic Bonds
Islamic bonds, commonly referred to as Sukuk, are structured in such a way as to generate returns to investors that comply with Islamic law and its investment principles. Sukuk represents undivided shares in the ownership of tangible assets relating to particular projects or special investment activity. They are available for investors who wish to adhere to Shariah principles.

There are various types of sukuk structures relating to the nature of the underlying asset. The most commonly used is where the sukuk relates to a partial ownership of an asset ("sukuk al-ijarah"). Other types of these bonds relate to partial ownership of a debt ("sukuk Murabaha"), project ("sukuk al-istisna"), business ("sukuk al-musharaka"), or investment ("sukuk al-istithmar"). Investors would still need to make their own independent assessment as to whether the particular Sukuk satisfies Shariah principles before investing.

More information on Islamic bonds is available to Maybank Securities clients. Please contact your Trading Representative.

What is the difference between of listed and unlisted bonds and fixed income securities?

Listed and Unlisted Bonds and Fixed Income Securities
Bonds and fixed income securities can be listed or unlisted. Examples of locally listed bonds and fixed income securities can be found on SGX-ST's Fixed Income Board, with domestic and foreign issuers including sovereigns (e.g. Indonesia), statutory boards (e.g. HDB/LTA) and corporations (e.g. DBS/Capitaland).

Between Listed and Unlisted Bonds and Fixed Income Securities
There are 2 key distinctions between listed and unlisted bonds and fixed income securities:

Pricing Conventions
Listed bonds and fixed income securities on SGX-ST are quoted on a 'dirty' basis, where the accrued interest on the next coupon payment is factored into the price. Unlisted/OTC bonds and fixed income securities are quoted on a 'clean' basis, where the price does not include accrued interest.

Dealing Size
The OTC bonds and fixed income market typically deals with a larger minimum ticket account size. Hence, it often experiences better liquidity.

Bonds & Fixed Income