Fibank Corporate bonds
Bonds are a form of debt securities that bring to their holders monetary income in the form of fixed or floating interest rate (coupon), according to the prospectus of the issuer. Depending on their term, corporate bonds are:
- short-term (up to one year), also called “commercial papers” which are sold at a discount from their face value and at their maturity date the issuer pays the full face value;
- medium and long term - with a maturity of over two years. Usually, the income from bonds is distributed as periodic interest (coupon) payments and on the due date of the bonds, the issuer pays the full amount of the loan. For some bonds the principal is repaid in tranches.
Depending on the issuer's the bonds are as follows:
- municipal bonds (issued by local authorities);
- corporate bonds (issued by companies);
- mortgage bonds (issued by banks based on their mortgage loans portfolios).
First Investment Bank offers:
- purchase and sale of corporate bonds traded on a regulated market (Bulgarian Stock Exchange JSC);
- purchase and sale of corporate bonds traded on the OTC market;
- purchase and sale of corporate bonds traded on foreign markets (on regulated and OTC market);
- administration of ongoing coupon payments on corporate bonds;
- administration of ongoing payments on corporate bonds principal.
Documents:
- Brokerage contract for financial instruments transactions;
- Financial instrument transaction order;
- Customer categorization document;
- Notification of appropriate service;
- Other documents (you may receive them at the Bank);
- General Terms applicable to contracts with clients of First Investment Bank AD for investment services and activities with financial instruments.
Fees and commissions according to the current Tariff of the Bank are applied.
Signing contracts, giving instructions, orders or requests, and any other legal actions for and on behalf of the client by proxy are allowed only if a notarized power of attorney is presented containing representative powers for carrying out management and/or disposal actions with financial instruments, and a declaration by the proxy that he does not carry out by occupation business transactions with financial instruments.
First Investment Bank AD in pursuance of Art. 10 of the Ordinance on the requirements related to the activities of investment intermediaries and with the objective so the customers, respectively the potential customers can make information-based investment decision, provides a description of the nature and characteristics of the offered and traded by the Bank as an investment intermediary financial instruments and the risks associated with them.
It should be taken into consideration that investment in financial instruments can bring additional risks to investors from unexpected changes in economic and market environment and the investor to take financial and other additional obligations as a result of transactions with financial instruments, including unexpected liabilities, additional to the cost of acquisition of the specific financial instruments.
Investing in financial instruments also bears the risk of losing the entire investment.
Risks related to transactions with bonds
Investments in corporate and municipal bonds traded in the country are mainly characterized by market, liquidity and currency risk, and also issuer risk and settlement related risk.
Market risk for bonds is associated with adverse change in market interest rates for debt securities issued with fixed or floating rate. Short-term bonds are associated with lower risk, while the long-term bonds are associated with higher risk.
Liquidity risk for bonds is associated with the risk of delay or inability to sell the debt financial instruments owned by the investor. Liquidity risk in this type of financial instruments is determined by the limited volumes of bond debts traded domestically.
Currency risk for corporate / municipal bonds is lower for investors with base currency in BGN and EUR (due to the Currency Board in Bulgaria). For investors with another base currency, the currency risk depends on the movement of exchange rates.
The issuer risk is related to the possibility that the issuer (a company or a municipality) gets into financial difficulty and is unable to pay the principal and the interests on the bond debt.
Settlement risk for bonds is associated with adverse market effects arising during the failure or delay of the process between the timing of contracting the transaction and the timing of its completion. To higher risk are exposed transactions contracted on the OTC markets or those not applying the “delivery versus payment” method.
Risks related to transactions on foreign markets
Investments in bonds traded on foreign regulated markets are generally characterized by market, liquidity, currency and issuer risk.
Market risk for bonds is associated with adverse change in market interest rates for debt securities issued with fixed or floating rate. Short-term bonds are associated with lower risk, while the long-term bonds are associated with higher risk.
Liquidity risk for bonds is associated with the risk of delay or inability to sell the debt financial instruments owned by the investor. Liquidity risk in this type of financial instruments is reduced by the larger amounts of bond debts traded on the foreign markets compared with those in the country.
Currency risk for bonds depends on the movement in exchange rates.
The issuer risk is related to the opportunity that the issuer may get into financial difficulty and is unable to repay the principal and the interests under the bond debt.
Leverage
Leverage in the field of investment services is the use of different methods of raising debt capital (margin trading) with the purpose to increase the rate of return. Leverage is a way of investing, in which a position is opened allowing the trade of funds exceeding many times the the investor’s own funds (deposited funds).
Leverage investment instruments may be options, futures, margin trading and other derivative financial instruments.
The use of leverage involves taking on additional risk, since this type of investment not only increases profits but also the possible loss.