Plain FX Forward

Trade in Debt Instruments

Secure a fixed income for a given period

DSK Bank offers its clients trading in government bonds by providing quotations for issues based on one or several of the following criteria: issuer, currency, maturity, yield to maturity, credit rating, coupon, volume.

A bond (debt security) is a loan issued by the issuer of a bond to be financed on the capital markets. Issuers can be governments (government bonds) or companies (corporate bonds).



Features:

  • Denomination - The face value is the amount that the investor will receive at the maturity of the bond or the total volume of an issue, issued by the issuer. The face value is usually 100 or 1,000 currency units. Each bond issue is traded on the markets at face value. For example, if the market price of a bond is 102% or 98%, this means that the investor must pay BGN 102 or 98 for a nominal value of BGN 100, respectively, stating that the issue is traded above or below the nominal value.

  • Yield to maturity - The most important indicator for a certain issue is the yield to maturity. It takes into account the face value of the issue, its price and the forthcoming interest payments on it. In practice, the yield to maturity shows the investor's income from an issue if, after buying it, it holds it to maturity. Yields and prices have a feedback – when market yields increase, prices fall and vice versa – when yields fall, bond prices rise.

  • Issue date and maturity - The date of issue is the date on which the bond is issued and is considered the starting date of the loan. The maturity is respectively the final date of the issue and represents the end of the issue or the last date of the loan that the issuer has taken from the investors.

  • Coupon  - The coupon is a periodic interest payment, which is calculated as a percentage of the face value. For example, if the face value is BGN 100 and the coupon is 2%, paid annually, each year until the maturity of the bond, the investor will receive an interest payment of BGN 2.


Risk and return:

  • Low risk and low yield: Investments in government bonds of countries with AAA rating are low risk and provide an opportunity for low yields. For example, German government bonds with a maturity of up to 7 years are even traded at a negative yield. Government bonds denominated in US dollars also carry currency risk related to changes in the value of the investment depending on the USD/BGN exchange rate.
  • Moderate risk and moderate return: Investments in government bonds of countries with an investment rating lower than AAA represent an interesting opportunity for clients who are willing to take higher risk in order to achieve higher yields. Countries such as the Czech Republic, Estonia, Poland, Mexico, Ireland and others have an investment rating. Again, investors must take into account the currency in which the issue is denominated.
  • High risk and high yield: Investment rating BB and lower is considered speculative, as bonds with such a rating also offer higher yields. Bulgarian government bonds fall into this category, and the lack of currency risk for BGN-denominated issues should be taken into account here.

Credit rating
   
 Standard&PoorsMoody'sCountries according to their credit rating (Standard & Poors)
Prime
AAAAaaAustralia, Canada, Denmark, German, etc.
High grade
AAAaСUSA, Austria, Finland, Belgium, France, etc.
Upper medium grade
AAIreland, Japan, Slovakia, Botswana, etc.
Lower medium gradeBBBBaaIceland, Mexico, Peru, Poland, Thailand, etc.
Speculative rating
   
SpeculativeBBBaAzerbaijan, Bulgaria, Indonesia, Russia, etc.
Moderately speculative
BBAlbania, Montenegro, Senegal, Greece
Highly speculativeCCCCaaBelize, Venezuela
Substantial risks
CCCaMozambique
Default imminent
CC 
In default
DD 

 

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