Fibank Government bonds
Government bonds are debt instruments issued by the Bulgarian or foreign governments to finance short-term and long-term government spending. Government bonds give their owners the right to receive money income by discounting the price below the face value or by payment of fixed or floating annual interest.
In Bulgaria, the Ministry of Finance together with the Bulgarian National Bank (BNB) regulates the terms and conditions under which are issued dematerialized government bonds on the domestic market. Trading in government bonds is mediated by primary dealers (banks and investment intermediaries) that have the right to acquire government bonds directly at the auctions organized by the BNB. Government bonds are treasury bills, government bonds, settlement (ZUNK) bonds, eurobonds.
First Investment Bank offers:
- transactions with government bonds on the primary market;
- transactions with government bonds on the secondary market;
- transactions relating to movement under government bonds registers;
- opening and keeping of a register of investment intermediary.
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.
Risk related to transactions with government bonds
Investment in government bonds mainly brings for the investor market risk, liquidity risk and issuer risk.
Market risk for government bonds is associated with the probability of increase (change) in market interest rates against fixed interest rate of debt securities. Depending on the maturity of government bonds, the shorter-term government bonds are characterized by lower market (interest rate) risk and vice versa - the longer-term government bonds bring higher market (interest rate) risk.
Liquidity risk for government bonds is lower than that of other debt financial instruments as the government bonds market is considered highly liquid.
The issuer risk related to government bonds is lower than that of other debt financial instruments, as the issuer in the face of the state and the risk of it to fall into financial difficulty and to be unable to repay the principal and the interests on debt securities is lower.
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 against debt securities issued with fixed or floating interest rate. Short-term bonds are associated with lower risk, while long-term bonds are associated with higher risk.
Liquidity risk for bonds is associated with the risk of inability or delay 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 loans traded on foreign markets compared with those in the country.
Currency risk for bonds depends on movement in exchange rates.
The issuer risk is related to the probability that the issuer may fall into financial difficulty and is unable to repay the principal and the interests on the bond loan.
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.