Bonds

Here’s an example of how you can earn returns when you purchase a bond and invest in the bond market through Citibank International Personal Bank. Supposed you bought a nominal amount or par value of US$250,000 of Citigroup bond at market price of US$100 in 2022. This bond pays a fixed coupon of 5.8% p.a. and matures on March 16, 2025.

This bond pays coupon twice a year. This means that each year on March 16 and September 16, you will be receiving fixed coupon payment of US$7,250 [(5.8% x $250,000)/2]. At maturity on March 16, 2025 the bond issuer, Citigroup, will pay you the final interest of US$7,250 + the principal of US$250,000.

Should you decide to sell the above bond on March 16, 2023 (before maturity), 2 scenarios could occur:

Suppose the market price of the bond is higher than the par value of US$100:

However, should the market price of the bond be lower than the par value of US$100, the scenario below could occur:

If you hold your bond till maturity, your capital* would not be affected by price fluctuations because the issuer will repay you the full value (nominal amount) of the bond.

* Please note that repayment of nominal amount is subjected to the credit risk of the issuer. Coupons paid net of custody fee prorated for the period with which bond is held.

Citibank offers you the choice to purchase several different types of bonds. As with all bonds, issuer’s credit risk is assumed.

Fixed Rate Bond
Coupon interest is known until the maturity of the bond

Floating Rate Bond
Coupons are variable and are frequently adjusted to reflect prevailing market interest rates. The advantage is that it provides the investor with a return commensurate with the prevailing market rate. 

Zero Coupon Bond
No interest payable throughout the life of the bond. The offer price is usually at a deep discount (e.g. purchase at US$70 and matures at US$100 in 5 years)

Callable Bond
The issuer has the option to redeem the bond before maturity on specific dates at specific prices. Due to this callable feature, the coupon rate is usually higher

• You may enjoy a regular stream of income
• You will enjoy capital appreciation if you sell the Bond when the price has appreciated (please note prices may also decline)
• You can consider investing in Bonds if you are looking to diversify your portfolio of investment assets

As with any investment, investing in bonds is also subjected to investment risk.

Market Risk

• Market risk is the risk of bond prices fluctuating as a result of changes in interest rates and inflation outlook. Generally, when interest rates are on the rise with inflationary outlook, bond prices will fall. Moreover, the longer the maturity, the more sensitive the bond price is to these macro-economic changes

Credit/Default Risk

• Investors assume the credit risk of the issuer. You may lose all of your investment if the issuer defaults on its bond or winds up or is liquidated. This product is not a bank deposit, is not government insured, is not an obligation of nor is it guaranteed by Citibank Singapore Limited/Citigroup Inc. or their affiliates (unless expressly stated in the relevant product documentation). Bond prices will be affected by the perceived credit quality or probability of default of the bond issuer.

Liquidity Risk

• During adverse market conditions, holders of a bond may not be able to liquidate all or part of their securities as and when they require. In addition, certain bonds may not be marketable and as such, cannot be liquidated before maturity. Investors should expect a rapid decrease in mark to market prices especially after a large coupon is paid. In the event the investor wishes to liquidate his bond before maturity, he/she will have to sell at the current available market price, which may result in a loss of principal. However, there can be no assurance that the investor will be able to obtain a firm bid price for the bond for an amount at which he/she wishes to sell.

Settlement Risk

• The investor assumes all settlement risks relating to failing to settle the bond on the relevant settlement date. In the event the issuer or counterparty fails to settle the bond, Citibank will return the money to the investor without interest. At maturity, funds will be passed on to the investor only after receipt of good funds by Citibank Singapore Limited from the issuer or counterparty. This may result in payment to the holders of this product on a date subsequent to the stated maturity date.

Sovereign Risk

• Payment of bonds may be affected by the economics and political events in the country of the relevant issuer. The occurrence of a sovereign risk event could result in the loss of all or a portion of the principal invested should, as a result of any economic or political circumstances, payment may be made in the local currency of the country, of the relevant issuer instead of the original invested currency.

Early Redemption by Issuer Risk

• Bonds can have provisions whereby the issuers may early redeem or “call back” the Bond, adjust or vary the terms and conditions of a Bond, substitute, convert or replace the Bonds prior to maturity.

^* The above is only a summary of some of the key risks in investing in the product. Detailed risk disclosures are set out in the documentation relating to the specific product. Prior to entering into a transaction, you should ensure that you have read and understood the nature of all of the risks associated with the investment in order to determine whether the investment is suitable for you in light of your experience, objectives, financial position and other relevant circumstances. You should consult with your legal, regulatory, tax, financial and/or accounting advisors to the extent you consider it necessary in making your own investment decision.

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