Bonds

Help the State to serve the community better

Bonds are financial instruments that represent a loan from investors to the issuer, which may be either the State or other public or private entities.

When he/she/it acquires a bond, the investor (bondholder) becomes a creditor of that entity. This investment bears credit risk, i.e. there is the possibility that the investor may not receive the sum invested and/or interest, if the issuer’s financial condition deteriorates.

  • Upon being issued, bonds may be sold directly to the general public, for instance through subscription at bank counters over a pre-determined period, or simply placed with institutional investors, which is known as placement in the Primary Market.
  • In the latter case, investors who are natural persons will only be able to acquire these securities if the bonds, following the initial sale, are listed on the stock exchange and available for trading, which is known as placement in the Secondary Market.
  • Return – they offer a fixed pre-determined return to the investor. The issuer pays the coupon on a certain date and for a certain amount. The repayment price and interest payments are stated in the issue and do not change over the duration of the bond.
  • Diversification – the investor of funds always bears the risk of a downturn in the capital markets. To offset this risk, the investor may subscribe bonds given that the performance of equities and bonds is inversely related.
  • Protection – bonds that pay a fixed income may be important to help the investor in the event of economic recession or deflation. Inflation-linked bonds may also serve to protect the purchasing power of your investments against inflation, because the principal amount is linked to inflation, determined at the time of issue.
  • Capitalisation – zero coupon bonds enable the investor to save money to achieve long-term goals, such as retirement. With a marked discount, these securities require a low initial investment with growth potential over the years.

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