UNDERSTANDING BONDS

Understanding bonds

Bonds can offer an attractive investment if you are looking for a regular income stream, while bringing an important element of diversification to your portfolio.

What is a bond?

Bonds are an investment in which the bond holder extends a loan to the bond issuer for a specified period of time. In return for the loan, the issuer will make regular interest payments – known as coupons – to the holder of a bond. Bonds can be issued by governments as well as companies.

How do bonds work?

The terms of a bond are stated at outset, including:

Bond issuers with a high credit rating - and so considered less likely to default - will typically pay a lower coupon than other issuers with a lower credit rating, who compensate the bond holder for the higher level of risk through higher coupon payments.

What affects a bond’s value?

Bonds, like shares, can also be bought and sold on the secondary market, where the market value will fluctuate. The price of a bond on the secondary market is primarily influenced by:

Important information:

Any advice is general advice only. It was prepared without taking into account your objectives, financial situation, or needs. Before acting on this advice you should consider if it's appropriate for your particular circumstances. You should also obtain and consider the relevant Product Disclosure Statement and terms and conditions before you make a decision about any financial product, and consider if it’s suitable for your objectives, financial situation, or needs. Investors are advised to obtain independent legal, financial, and taxation advice prior to investing.

Investments are not deposits or other obligations of, guaranteed, or insured by Citibank N.A., Citigroup Inc., or any of their affiliates or subsidiaries, or by any local government or insurance agency, and are subject to investment risk, including the possible loss of the principal amount invested.

Investors investing in funds denominated in non-local currency should be aware of the risk of exchange rate fluctuations that may cause a loss of principal. Past performance is not an indicator of future performance. Investment products are not available to US people and may not be available in all jurisdictions. All investments are subject to risks and can change in value. Citibank provides access to investment grade bonds. However, bonds can vary in risk depending on the credit worthiness of the issuer. The capital value of a bond can rise or fall depending on interest rate movements or the interest rate outlook. A bond's capital value can increase or decrease before maturity based on current interest rates. Generally speaking a bond’s capital value drifts back towards par as it approaches maturity.