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Understanding how to purchase a bond

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  1. #1

    Join Date
    May 2011
    Posts
    101

    Understanding how to purchase a bond

    Hi guys,

    Could you please teach me how to read something like this (attached or link below):

    http://www.asx.com.au/asx/markets/pr...sxCodes=GSBW13

    Does this mean:
    1) The current price is 101.875 (offer). So to get 1000 units of this, I would fork out $101,875
    2) I will get 4.324% coupon on 16th December, so on my 1000 bonds, I will get 4,324 / 2 = $2,162 (as coupon rates are annualized)
    3) What is "Next Ex-Date" ?
    4) The actual annual return then is 4,324/101,875 = 4.24%
    I read a few articles online but I am still confused!

    Is this right?

    Thanks!


  2. #2

    Join Date
    Dec 2012
    Posts
    904

    What currency is this bond? If it'd hkd I am interested

    On an unrelated note, does anybody know where I can find higher yield hkd bonds?


  3. #3

    Join Date
    May 2011
    Posts
    101

    AUD. I think you can buy corporate bonds from the HSBC website. Interest rates aren't as good. With AUD you take a big currency risk (converting HKD to AUD) but I already have AUD so looking to just buy bonds to keep principal intact by holding it to maturity.


  4. #4

    Join Date
    Aug 2009
    Posts
    2,711
    Original Post Deleted
    DeletedUser is pretty spot on. the only thing to add is that your actual percentage return is expressed as yield which in this case is 4.32%. since the bond matures by December, you will get the full face value back (100%) plus the coupon payment adjusted for the days as per DeletedUser's calcs.

    Your actual return will be slightly lower still since you also need to pay transaction fees.
    scumbag likes this.

  5. #5

    Join Date
    May 2011
    Posts
    101

    Thanks guys. One thing still puzzles me though. Why would someone put money in term deposits in Australia if they can buy better yielding Gov bonds instead? (like the one above). For non residents, there's no withholding tax either. Is it because if someone wants to sell a bond halfway, there's a chance they will lose a tiny portion of the principal?


  6. #6

    Join Date
    Aug 2009
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    2,711
    Original Post Deleted
    you also have different credit risks on both. the bond is underwritten by the government (which could theoretically default) and the term deposit is underwritten by the respective bank

  7. #7

    Join Date
    Dec 2012
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    Maybe it's also because you have little money to invest? Bonds may come in $10,000 chunks, or $1,000 chunks? If you want to invest less than that you would buy term deposits.


  8. #8

    Join Date
    May 2011
    Posts
    101

    Also, DeletedUser, do you know what the difference is between Next ex date and next dividend date?


  9. #9

    Join Date
    Sep 2008
    Posts
    3,677
    Quote Originally Posted by scumbag:
    Also, DeletedUser, do you know what the difference is between Next ex date and next dividend date?
    Click on the word and the help will be shown.

    Note that the price of bonds doesn't drop when the coupon is paid.
    scumbag likes this.