Bonds and Certificates of Deposit
The information in this webpage is provided for reference only and shall not be considered as investment advice. It does not constitute any offer or solicitation of offer to subscribe, transact or redeem any investment product. If you have any doubt, you should seek independent professional advice.
Bonds and Certificates of Deposit (CDs) are investment products. The investment decision is yours but you should not invest in a bond/CD unless the intermediary who sells it to you has explained to you that the bond/CD is suitable to you having regard to your financial situation, investment experience and investment objectives. Your intermediary is under a duty to assure that you understand the nature and risks of this product, and that you have sufficient net worth to be able to assume the risks and bear the potential losses of trading in this product.
Bonds are not deposits and should not be treated as substitute for conventional time deposits.
Certificate of Deposit is not a protected deposit and is not protected by the Deposit Protection Scheme in Hong Kong.
Investors who purchase bonds/CDs are exposed to the credit risk of the issuer and guarantor (if any) of the bonds/CDs. There is no assurance of protection against a default by the issuer/guarantor in respect of the repayment obligations. In the worst case scenario, any failure by the issuer and the guarantor (if any) to perform their respective obligations under the bonds/CDs when due may result in a total loss of all of your investment.
Renminbi (RMB) is not a freely convertible currency. As such, investors trading bonds and/or CDs denominated in RMB are subject to additional risks (such as currency risk).
The above is not an exhaustive list of risk factors. Please refer to the section on “Risk Factors” in the relevant “Bond / Certificate of Deposit Trading Services” Factsheet to understand other risk factors applicable to bonds and CDs.
Bonds and Certificates of Deposit Services
Provide Stable Income Stream
Investing in bonds or CDs and holding them in long term offer steady income stream to investors.
Predictable Return
In addition to providing stable income stream, investing in bonds and CDs can provide predictable return, with relatively low volatility.
Risk Diversification
Inclusion of bonds and/or CDs can diversify risk and offer relative stability to a portfolio.
- Wealth Management Connect (WMC) Service
- Bonds are available in major currencies, including Renminbi
- Tenors ranging from 1 to 10 years for bond investments are available
- Characteristics of these eligible Bonds include: Low-to-medium risk level, Non-complex bond and Investment grade
- If you are interested in Wealth Management Connect (WMC) Bonds, please click here
- WMC will be governed by the laws and regulations on retail wealth management products applicable in Hong Kong and the Mainland
- Bond and Certificate of Deposit Trading Services
- A wide variety of bonds are available for selection. Bonds available are issued by governments, local quasigovernment bodies, supranationals and corporations.
- Certificates of Deposit (CDs) are issued by financial institutions such as banks.
- Bonds and CDs are available in major currencies including Renminbi.
- Tenor ranged from 1 to 10 years for bonds and from 3 months to 3 years for CDs are available.
- Minimum investment amount is as low as HK$50,000 for bonds and US$50,000 (or equivalent) for CDs.
- No charges for Transfer-in and Custodian Fee*
- If you are interested in the latest bonds list, please click here
- * Fee waiver for safe custody if account only hold bonds and/ or CDs during that month
- All charges are subject to revision. The charges for other specific services will be advised at the time the services are offered or on request.
Important Notice: For the product risk rating information of Bonds and Certificates of Deposit: Please click View detail [PDF]
What are Bonds?
Bonds are debt instruments issued by governments, corporations or other issuers to bondholders. There are various types of bonds on the market including fixed rate bonds, floating rate bonds, zero coupon bonds and convertible bonds. Bondholders are effectively lending money to the bond issuer in return for the bond issuer’s promise to make regular interest payments over the life of the bond and repayment of principal at maturity.
Hang Seng Bank currently offers bonds denominated in the major currencies issued by governments (including the PRC government, the HKSAR government), local quasigovernment bodies, supranational organizations and corporations. Hang Seng Bank also offers a wide selection of bonds with different investment tenors, ranged from one to ten years with various benchmark yields to suit different investors’ needs. The minimum investment amount can be as low as HKD50,000[1].
What are Certificates of Deposit?
CD is a type of debt instrument similar to bond. CDs are issued by financial institutions such as banks. CD holders are effectively lending money to the CD issuers in return for the CD issuer’s promise to repay the principal and an interest payment at maturity.
Hang Seng Bank offers investors with different types of CDs with various tenors and currency denominations to suit different investment objectives.
The trading price of a bond may fluctuate based on the prevailing market conditions (such as prevailing market rates, any change in the credit rating of the bond and the supply and demand of similar bonds in the market), and may not be in line with the expectations of bondholders.
Illustrative Example
Miss. Chin invested US$98,000 in a fixed rate corporate bond at a market price of 98% at the end of 2012. The face value of the bond was US$100,000. The bond has the following features:
Coupon Rate: 3% p.a.
Maturity Date: December 15, 2018
Scenario 1
Scenario 2
Scenario 3
Scenario 1: Miss. Chin holds the bond until maturity
Miss. Chin will receive an interest payment of US$3,000 (US$100,000 x 3%) every year before the maturity. On December 15, 2018, Miss. Chin will receive the final coupon payment of US$3,000 plus US$100,000 principal amount.
Scenario 2: If Miss. Chin sells the bond with market price = 102%
If Miss. Chin sells the bond in June 2013 and the market price of the bond at that time is 102%, Miss. Chin will receive an accrued coupon payment of US$1,500 plus US$102,000 (102/100 x US$100,000) for the sale of the bond.
Scenario 3: Issuer defaults
If the issuer becomes insolvent and defaults on its obligations under the bond on or before 15 December 2015, Miss. Chin will not receive any interest amount since last coupon payment date and in the worst case, Miss. Chin may not receive the face value of the bond at maturity.
Government and Corporate Bonds
Credit Rating
Terminology
Government and Corporate Bonds
Categories of bonds are classified by the nature of issuers. Government bond is used to describe debt securities issued by a government, e.g. Treasury bills, notes and bonds. Most governments issue bonds to help regulate the money supply and pay off national debts.
Corporate bonds are debt securities issued by private or public corporations. Investors usually consider corporate bonds as a safer investment than company's shares, this is because the holders of corporate bonds have higher priority over shareholders with regard to the corporation's assets in case of liquidation.
Credit Rating
A bond’s credit rating indicates its credit quality and the issuer’s financial ability to repay the bond’s interest payments and/or principal at maturity. Credit rating agencies (e.g. Moody’s and Standard & Poor’s) may assign credit ratings to the bonds themselves or to the issuer. Investors should be aware that credit ratings are only the opinion of a particular credit agency and may change from time to time.
| Moody's | Standard & Poor's | What do the Ratings mean? | |
| Investment Grade | Aaa | AAA | Highest quality |
| Aa1,Aa2,Aa3 | AA+,AA,AA- | High quality | |
| A1,A2,A3 | A+,A,A- | Upper-medium quality | |
| Baa1,Baa2,Baa3 | BBB+,BBB,BBB- | Medium quality | |
| Non-Investment Grade | Ba | BB | Speculative |
| B,Caa | B,CCC,CC | Highly speculative | |
| Ca,C | D | Default |
Moody's applies a numerical indicator 1,2 and 3 in each generic rating. For examples, A1 is better than A2. Standard & Poor's use a plus or minus indicator. For example, A+ is better than A, and A is better than A-.
Ratings affect a bond's yield. The lower the rating, the higher will be the yields as investors will need extra incentive to compensate for taking on higher risk.
Investment grade bonds are of relatively high quality with a minimum S&P rating of BBB- or a minimum Moody's rating of Baa3.
Non-investment grade bonds, on the other hand, are of lower quality, and carry a higher risk of default. S&P rates these BB+ and below, while Moody's rates them Ba1 and below.
Credit ratings opinions are
(i) not intended to be a prognosis or recommendation,
(ii) not necessarily an indication of liquidity or volatility,
(iii) may be downgraded if the credit quality of the relevant entity or asset or obligation declines, and
(iv) is only an opinion of a particular credit agency and may change from time to time.
Credit ratings are primarily intended to provide investors and market participants with information about the relative credit risk of the bonds and its issuers. Investors should consult their intermediary to obtain the latest credit rating of a particular bond.
Terminology
Issuer
This is the party that borrows the money. Bonds are commonly classified by the nature of their issuer, for example, corporate bonds (issued by companies or their subsidiaries), government bonds (such as Exchange Fund Notes issued by the Hong Kong Monetary Authority), and bonds issued by supranational organizations (like the World Bank).
Principal
This is also called the par value or face value. It is the amount repaid to the bondholder when the bond matures.
Coupon rate
This is the rate at which the issuer pays interest on the principal to the bondholder each year. Interest payments are normally made at regular intervals, e.g. annually, semi-annually, quarterly. For Certificate of Deposit, the interest payment is usually paid at maturity. The coupon rate can be fixed, where it does not change over the term of the bond. It can be floating, where it is reset periodically according to a predetermined benchmark, such as HIBOR plus a spread. The coupon rate can even be zero. A zero-coupon bond is usually sold at a price below its principal. The bondholder's return is then the difference between the purchase price and the principal repaid on maturity.
Coupon Frequency
The regular intervals that interest payments are normally made, e.g. annually, semi-annually, quarterly.
Term
This is the life of the bond, i.e. the period (usually a number of years) over which the issuer has promised to meet its obligations under the bond. Some bonds can be "perpetual" in the sense that they do not have a fixed maturity date.
Guarantor
Some bonds are guaranteed by a third party called a guarantor. If the issuer defaults, the guarantor agrees to repay the principal and/or interest to the bondholder.
Maturity date
Bondholder will receive the principal and accrued interest on this date.
Bond yields
Bond yield is the amount of return an investor realises on a bond. There are several types of bond yield measures. Actual yield of bonds will depend on the subscription or purchase price and may be higher or lower than the specified coupon rate. Current yield, yield to maturity (YTM), and yield to call (YTC) are the three commonly used bond yield measures.
Current yield
The annualised rate of return calculated by simply dividing the current annual coupon of a bond by its price
Yield to maturity
The rate of return anticipated on a bond if it is held until maturity. YTM is usually expressed as an annual rate of return.
Yield to call
The rate of return of a callable bond which is held until the call date. The yield will only become valid if the bond is called before maturity.
To learn more about Bonds, please visit "The Chin Family" website
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Related Documents
The costs and charges of investing in bonds/CDs
The minimum amount for investing in Bonds is HK$50,000[1], for CDs is US$50,000 (or equivalent), depending on the type of bond/CD and the respective market prices at the point of trading. Handling fees are charged for the following services:
| Service |
Charges |
| Buy / Sell bonds or CDs/Redemption at maturity |
Nil[3] |
| Safe custody (account only holds bonds and/or CDs during that month) |
Nil[3] |
| Transfer in from other custodian | Nil[3] |
| Transfer out to other custodian |
HKD500 / instruction[3] |
[3]All charges are subject to revision. The charges for other specific services will be advised at the time the services are offered or upon request.
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