Exchange Traded Bonds and Sukuk (ETBS)
Bonds/Sukuk have always been seen as an asset class to hedge when markets are bearish and a means to develop a steady income over many years. But in the past the bonds/sukuk market was accessible only to high net worth and institutional investors. Now with ETBS, all investors can have access to the bond/sukuk market with ease, via the stock market. What are ETBS
ETBS are fixed income securities, also known as bonds or sukuk*, that are listed and traded on the stock market. ETBS are issued either by companies or governments (the issuer) to raise funds for their needs. ETBS have varying structures such as fixed rate, floating rate and hybrids. * Sukuk refers to issues that complies with Shari'ah principles Why Invest in ETBS?
Here are some of the reasons to invest in ETBS:
a. Flexibility and Ease of Trading: ETBS are traded on Bursa Malaysia, making the buying and selling of ETBS as easy as trading in shares. b. Transparency: As ETBS are listed on the bourse, investors will have access to real-time prices and volumes, just like shares. This will enable investors to continuously monitor their investments and receive up-to-date information. c. Diversification: Investors can diversify their portfolio to include ETBS to complement their investments in other asset classes such as equities, derivatives, unit trusts, etc. d. Additional Income Stream: Investors can benefit from a steady income stream through regular coupon payments. What are the factors that determine the price of an ETBS?
a. Price and Yield
ETBS pricing and yield are primarily determined by the demand and supply in the marketplace. Investors want as high a yield or return for their investment as they can get, thus when ETBS prices are low, investors are willing to pay less for a ETBS and therefore getting a better yield. In contrast, a high ETBS price would mean returns are lower, as coupon payments for an ETBS are generally fixed to the...
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