In the complex world of finance, bonds are emerging as a key investment instrument. Whether for government or business, they are a crucial tool for raising capital. But what about you, as an investor? Understanding bonds means adding another tool to your arsenal for diversifying your portfolio and protecting your capital.
A glossary to demystify bonds
To navigate through the jungle of bonds, it's essential to master certain terms. The "nominal value" represents the initial value of the bond, the "maturity" indicates the timespan of the loan, while the "coupon" refers to the periodic interest. The currency of issue and the nature of the interest rate (fixed, variable or zero) are also key elements in choosing the type of bond best suited to your needs.
The different forms of bonds
Bonds come in several forms, each with its own specific features. First of all, we distinguish government bonds from those issued by companies. These include:
- Fixed-rate bonds, offering a constant remuneration until maturity.
- Variable-rate bonds, with coupons which move in accordance with market rates.
- Zero-coupon bonds, which accumulate interest for a single payment at maturity.
- Convertible bonds, which can be converted into shares.
Understanding the risks associated with bonds
Two main risks need to be considered: default risk and interest rate risk.
The former concerns the issuer's ability to honour its liabilities, while the latter is linked to interest rate variations, which can impact the price of fixed-rate bonds when interest rates rise and the future yields of floating-rate bonds when interest rates fall. Despite these risks, bonds generally remain less volatile than equities and offer a degree of security in the event of issuer bankruptcy.
Our vision of bonds at Piguet Galland
At Piguet Galland, we integrate bonds into our investment strategies either by selecting direct lines or by using diversified bond funds managed in-house or by respected fund managers. Our Piguet Global Fund - International Bond fund targets fund targets high returns by investing primarily in international bonds, including convertibles and options. Capital preservation is at the heart of our strategy.
To find out more about bonds and how to integrate them into your wealth management, our experts are at your service to guide you and answer your questions.
