Fixed Income Products
An alternative to simply placing surplus funds on deposit for a fixed period at a fixed rate is to purchase one of the wide vari¬eties of bonds available to investors. For a list of the MENA Bonds and Sukuks please click here (this will link into the MENA Bonds and Sukuks).
A bond is a certificate issued by most commonly, large corporations or government or quasi-government entities. Large state-owned industries, such as a country’s main electricity generating company, are also frequent issuers of bonds.
Most, but not all, bonds are issued as a means of raising long-term finance on a fixed cost basis. The regular (usually yearly or half-yearly) interest payments made by the borrowers are known as ‘coupons’. The issuer (borrower) will, prior to raising long-term finance in this way, need to establish on what terms the money can be attracted from investors.
Factors to be taken into account are the creditworthiness of the borrower, the currency chosen, the issuing period of the bond, current market conditions and appetite for similar bonds previously issued.
Bonds are quoted and traded by price, with the quote reflecting a percentage of the original borrowed amount that the bond is now worth (see example below)
One major advantage for investors who buy the bonds is that they can subsequently be sold on (‘traded’) to other investors dur¬ing the lifetime of the bond. This gives the investor an increased level of flexibility to adjust their investment profile if their view of interest rates subsequently changes. The trading of previously issued bonds in this way is referred to as the ‘secondary mar¬ket’. A fixed term deposit does not of course offer this opportunity.
The fixed interest rate paid by most bond issuers means that there has to be a method of adjusting the bond’s market value when interest rates in the market move away from levels seen when the bond was issued. This is achieved through the bond price.
Golden Rule: When interest rates fall, bond prices rise
At Emirates NBD Bank, it is our constant effort to meet all the requirements of Emirati efficiently by offering various banking services.