Fin301 Online discussion 2 22 Aug 2010

Q1) Discuss in what ways Temasek’s bond issue has helped deepen the bond markets in Singapore.

Temasek holding, being the investment arm of the Singapore Government, credited AAA by Standard and Poor, Aaa by Moody's have been view by many investors as a "well known" corporation. With the current low interest environment, many investor are on the look out for "good buys". Temasek's bond definitely falls into that category.

The bond market in Singapore has existed since 1960s but, Temasek is the first corporation to issue such 40 year bonds. Temasek holding had also issued bond in US dollars, Sterlings and Singapore Dollars.

More investor, locally as well as foreign will be taking an interest in our local bond market. With the overwhelming demand for the bond, there will not be a lack of suitor in the secondary market. This creates liquidity for bond investors.

Temasek holdings also had path way for many corporation to come into the bond market. With more investor interested in the local bond market, as well as the liquidity in the second market, demand will definitely be on the rise. Many corporation will be able to issue bond to cater to the demand and raise cash for their own capital.

Though it might still take sometime for our local bond market to grow, Temasek Holdings have definitely open the door to it.



http://www.fundsupermart.com/main/sgsInfo/sgsIntro.tpl
http://blogs.wsj.com/marketbeat/2010/07/20/temaseks-sterling-bonds-shine/?KEYWORDS=temasek+bond
http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748704625004575089141725385782.html



Q2) Discuss the various risks that investors should be mindful of when investing in bonds.

Interest rate risk, refers to the value of the bond, increasing or decreasing due to the fluctuation of the interest rate. Whenever the interest rate increase, the bond value will decrease. Conversely when the interest rate decrease, the value of the bond increase.
Inflation risk refers to the risk that income earn from the coupon interest might be eroded by inflation. The coupon interest is fixed but inflation might fluctuate. Inflation risk are higher for longer term bonds.
Currency risk refers to the risk involve when converting the foreign currency-denominated bonds to the local currency. Not all bonds are denominated in Singapore dollars thus if the bonds that you invest in is a foreign currency, you will be exposed to the currency risk.
Risk of default of issuer refers to the risk, when the issuer are not able to repay the coupon interest or the pricinpal value when facing financial problems. This will cause the investor to potentially lose all of the capital invested in the bond.

Source of research : http://www.hsbc.com.sg/1/2/miscellaneous/personal/investments/bonds-risks