Individual Clients Trade in Debt Instruments

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.

Target market of the product

Bonds are debt financial instrument - product, which the Bank distributes. The table below sets out the criteria for determining for which client profile the product is compatible with or not.

	Positive	Negative
Type of clients	all types of clients: retail, professional and eligible counterparties
Clients’ knowledge and experience	- basic knowledge of capital markets and experience related to bond trading. Knowledge about the movement and expectations of interest rates and, accordingly, the market prices of bonds; - understanding the risks associated with investing in bonds; - knowledge about the issuer; - understanding the process for concluding transactions in bonds	does not meet the indicated knowledge and experience requirements
Clients’ financial situation with a focus on the ability to bear losses	able to afford a negative result when the bond prices change during the investment
Clients’ risk tolerance and compatibility of the risk	from a low to moderate risk profile, given the volatility of bond and financial markets, as well as the presence of credit risk	is reluctant to bear the risks associated with an investment in bonds
Clients’ objectives and needs	receive regular income

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&Poors	Moody's	Countries according to their credit rating(Standard & Poors)
Prime	AAA	Aaa	Australia, Canada, Denmark, German, etc.
High grade	AA	Aa	СUSA, Austria, Finland, Belgium, France, etc.
Upper medium grade	A	A	Ireland, Japan, Slovakia, Botswana, etc.
Lower medium grade	BBB	Baa	Iceland, Mexico, Peru, Poland, Thailand, etc.
Speculative rating
Speculative	BB	Ba	Azerbaijan, Bulgaria, Indonesia, Russia, etc.
Moderately speculative	B	B	Albania, Montenegro, Senegal, Greece
Highly speculative	CCC	Caa	Belize, Venezuela
Substantial risks	CC	Ca	Mozambique
Default imminent	C	C
In default	D	D