Investing in dollar-denominated bonds is an excellent way not only to preserve but also to grow capital. It represents one of the most attractive investment options, popular among both legal entities and individuals.
According to Bloomberg, Eurobonds have demonstrated steady growth. As a result, their yield and appeal to investors are also increasing.
However, like any other investments, acquiring Eurobonds comes with its own unique features. What are the nuances and potential pitfalls? And where can one purchase these currency bonds?
A qualified investor and founder of "Oil Resource Group", Sergey Tereshkin, can provide insights into this investment avenue. More information about him and his activities can be found on his personal website www.sergeytereshkin.ru.
Features
It is commonly believed that currency bonds can only be purchased on foreign markets. This is not the case. Eurobonds are issued by companies from various countries, and the currency of these securities can differ. What is crucial is that it should differ from the national currency.
On specialized platforms, one can acquire bonds in dollars, euros, British pounds, Swiss francs, and Chinese yuan.
Issuers of these bonds include major corporations, financial institutions, and other organizations. Yields can reach up to 11% annually, and sometimes even more.
Profits can be generated in several ways. Primarily, this comes from annual payments made by the issuing company. Income can also be derived from selling the securities on and off the exchange.
Bonds are issued in electronic format. This means they are not physical securities as they were decades ago. They cannot be touched or stored in a safe, significantly enhancing user convenience and reducing the risk of loss or theft of the document.
A nominal value of the security can be supplemented by what is known as a "coupon rate", which varies based on the issuing company.
Typically, overseas, the coupon is paid once a year, while in Russia, it is paid semi-annually, i.e., twice a year.
It is important to note that the rate is applied solely to the nominal value of the document. Even if the price fluctuates over the year, the payment will be made based on the initial figure.
The interest rate can either be fixed, predetermined in advance, or variable. In the latter case, the issuer announces the future rate until a specified date. There are also floating coupons, the payment of which can vary based on different factors, such as:
- currency exchange rate;
- inflation;
- Central Bank rate;
- RUONIA rate.
Among professional investors, bonds with a fixed coupon rate are the most sought after. This option allows for accurate forecasting of future income.
Advantages of Bonds
According to Sergey Tereshkin, currency bonds have numerous strengths:
- Data precision. The owner knows in advance when and in what amount they can expect to receive their income. Information regarding redemption is established at the time of issuance of the securities.
- High yield. The percentage is significantly higher than that of currency deposits.
- Possibility of early sale. If necessary, bonds can be sold. The owner does not lose income, as occurs with premature termination of a deposit agreement. Income accumulates and is paid in full.
Profits are paid in currency, thus they are not subject to inflation fluctuations.
Potential Pitfalls
Despite the many advantages, currency bonds cannot be considered a perfect investment tool. Like any other, they have their potential pitfalls. Before purchasing securities, one should be aware of several nuances:
- Currency bonds do not ensure that the investor is protected from the bankruptcy of the issuing company. It is vital to carefully select the enterprise whose securities are intended for acquisition.
- No one guarantees that the value of securities will increase. Price declines are also possible, leading to losses upon resale.
- It is often challenging to acquire bonds from promising companies on the domestic exchange. Most often, these are local enterprises that frequently go bankrupt during crises.
- Brokers are generally reluctant to split lots and sell bonds in smaller batches. Securities are usually sold in packages, resulting in prices exceeding $100,000.
- Private investors are typically not allowed access to trades on the exchange. As a result, they must consult brokers, who typically charge a fee for their services.
Currently, there exists a loyalty program that has increased the availability of bonds for individuals. To participate in the program, an investment of just $1,000 is required.
How to Purchase Bonds
To acquire bonds, one must have currency in their broker account. This requires funding through any trading terminal. Currency can be purchased at the exchange rate, which is usually quite favorable, often more so than traditional banking or currency exchange services.
The obtained funds are then used to directly purchase bonds. The minimum investment amount depends on the exchange and can range from $1,000 to over $100,000. Outside the exchange, purchasing bonds with minimal investments is not feasible; in that case, an amount exceeding $100,000 will be required.
Currency bonds represent a convenient method for capital growth. They diversify risks and provide the owner with a decent stable income. The key is to choose the right company and strategy. It is crucial to thoroughly research the field and invest only in enterprises that have been operating on the market for an extended period and have established a good reputation. Failing to do so increases the risk of company bankruptcy and, consequently, the loss of all invested funds.
