Corporate Bonds: A Good Investment?

[R123]

The return on bank deposits is lousy, so does anyone have any experience of purchasing sterling or other corporate bonds paying interest annually or more frequently?

Are they obtainable offshore in the same way as bank deposits?

Any recommendations for some good ones with returns paid gross etc?

How and where to look to get some....?

Do I need an agent or broker?

If so, can you suggest any reliable offshore ones?

I live in Thailand

Many thanks in advance for any advice.

[loverboy44]

Well, corporate bonds and country securities are indeed a good investment at the moment as this is a major source of financing for many companies and countries.

The risk of such a bond or a security is that the company or country gets bancrupt. That is the only danger.

They are traded daily so the price diiffers every day.

They are rated, so you can check the risk of buying them. The worse the rating the higher the interest rate and the risk of loosing the money.

The next thing is the currency in which you buy them. In US$ you usually get 1 % interest more but the risk is still that the exchange rate can go downhill as well as you could speculate that the GBP goes up, which i would not think right now. So, i would suggest buying in EUR or Swiss Franks will be the safest. But this is just my humble opinion.

So, for example, if you buy Siemens bonds at 98 % of the market price today (don't know if they are 98% as of today, just an example) and they are running 2 years, you get 5 % interest rate per year ( again, don't know about the interest rate right now), Then you will get paid out 100% after 2 years, means 1 % profit plus 5 % interest rate = 6 % profit.

The chance that a company goes bancrupt is higher than that of a country. So i prefer country securities rather then corporate bonds if they are available. My best deal was that i bought securities from Turkey at 97 % with an interest rate of 9,25%.

Anyway it is not without any risk.

You can buy them at any bank as this is a major source of profit for them at the moment which is quite riiculous as the banks get money from the states, that therefor have to give out securities and the banks sell them for their profit.

[Briggsy]

An online broker is the easier way to invest in corporate bonds. This allows you to avoid expensive commissions. This may help you.

UK's biggest online broker

There are a number of corporate bond unit trusts (if you are thinking about the London Stock Exchange).

I just sold my holding in Gartmore's Fixed Interest Fund. It's a unit trust holding almost entirely corporate bonds.

Beware with corporate bonds, you have to think about not only the interest you will receive, but also the possibility that the companies will go out of business. Here's a more detailed explanation.

Explanation of corporate bonds for relative beginners

[tpkhk]

R123 -

I live in Thailand too - but am not sure how to go about these locally. There have been some govt bonds sold locally through the retail banks, but mostly gone in the blink of an eye. I believe you are asking about US$, GPB etc.

I am familiar with the US system - but the same may hold true in the UK too. Ie. contact the UK arm of these brokerages..

If you are willing to open an account with a US brokerage (easy process) - eg. Charles Schwab, TD Ameritrade, ETrade - they'll let you buy corporate, federal, municipal and state level bonds. Coupons are issue specific - monthly, quarterly, semi annual or annual. The advantage of buying via the discount broker is that there are relatively lower minimums - eg. US$5000, or $10,000 and so on. The lower the amount, note that the commission on a % basis would be relatively high. The broker quotes you in terms of yield... so the commission is built in and you may not realize it, except that the yield will be lower.

With some of the brokers - with online support, once you set up an account, you can even query their database, although most won't let you buy bonds online. You need to call and speak to a live person to complete the transaction.

Retail Banks (or a division within them) can sell you corporate bonds, but most of them insist on a US$100K or equivalent minimum. You may want to check with your banker in the UK. Same for full service brokers - like Smith Barney, Merrill...

Go to internotes.com - this is a site set up by a company called Incapital to allow corporate bond issuers to sell directly to the investing public. Big names like HSBC, GE etc. also issue via these guys. Every week, there are new issuers. Subscribe to their free update email. Not sure if you can buy directly from Internotes, as a non-US resident, but I have confirmed that you can quote the CUSIP Number / Maturity date and buy the same issue via a broker like Schwab, Etrade, TD Ameritrade etc.

Incapital also started something in UK, but I can't find any active URL or any Sterling issuers.

Internotes only deals with new issues, whereas your broker can help you buy things from the secondary market... eg. a bond issued say 3 years ago.

As for whether bonds are a good buy;

Watch for issuer risk

Watch for industry risk - eg. HSBC may be strong, but if the industry is tainted, it depresses prices.

Interest rate risk - If you hold until maturity it doesn't matter - but if you plan to sell mid-way, the price you can get will very much depend on whether Central Bank interest rates have gone up or down compared to when you bought it.

If you have a way (eg. ETRADE Australia?), look out for AUS$ denominated bonds - they pay a healthy yield, backed by a decent economy. Good chance they'll have an interest rate increase before the year is out..

Other commenters may be familiar with specialist bond brokers.

Hope this helps