Why invest in bonds with Davy Select?
- You have the security and confidence of the Davy brand - Ireland's leading provider of wealth management, asset management, capital markets and financial advisory services.
- Davy Select is one of the most trusted and reliable platforms in the marketplace.
- If you are comfortable making your own decisions, without advice.
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What are Bonds?
Think of bonds as a type of IOU with interest. They are loans to a government, corporate or other organisation (the borrower), which pays you (the lender) interest over the bond’s term and returns your original sum at the end of the loan period. Depending on the agreement, the borrower must pay interest at specified intervals. Thus, like deposit accounts, bonds are fixed-income investments for savers.
A bond can be bought and sold on the secondary market, subject to sufficient liquidity, and the value or price of the bond can fluctuate due to factors such as interest rate movements and the perceived credit worthiness of the issuer.
- Bonds are generally more secure than stocks and shares because bondholders are creditors rather than equity investors.
- Bondholders have priority over equity investors in the event of bankruptcy.
- Bonds are usually redeemed after a defined term (e.g. 5, 10, 20 years), whereas shares can be held indefinitely.
- Bondholders generally receive fixed-income interest payments, typically annual or semi-annual although sometimes monthly.
- Fees and charges apply.
Some risks of investing in Bonds
Investing in Bonds is not without risk. Bond prices can be volatile.
Interest rate risk: This is the risk that arises for bond owners from fluctuating interest rates. How much interest rate risk a bond has depends on how sensitive its price is to interest rate changes in the market. The sensitivity depends on two things, the bond's time to maturity, and the coupon rate of the bond.
Credit Risk: This is the risk that an issuer will be unable to make interest or principal payments when they are due, and therefore default.
Inflation Risk: Inflation reduces the purchasing power of a bond’s future coupons and principal. As bonds tend not to offer extraordinarily high returns, they are particularly vulnerable when inflation rises.
More information on the risks of investing in bonds.
Getting started with Davy Select
Bond orders must be placed over the phone with our Execution Desk, rather than online. If you would like more information on bonds, see our What are Bonds? page.
You can place bond orders with our Dealers from 8am to 9pm Monday to Thursday and 8am to 8pm on Fridays.
Call 01 614 8900.
You can also transfer your existing holdings from other brokers into your Davy Select account. Please advise your broker to contact Davy at email@example.com to execute the transfer.
Davy does not charge for the transfer of holdings from other brokers. However, please note that other brokers may charge you a fee for the service.
Examples of different types of bonds
A government bond is a bond issued by a national government usually denominated in the country's own currency. Davy Select gives you access to government bonds including those issued by Ireland, UK, Europe and the US.
Examples of Government Bonds
Irish 5% 18/10/20:
This is an Irish Government Bond with a 5% coupon that matures in October 2020. For example, suppose you bought 100,000 nominal at a price of 100.00. This means that you should receive a coupon of €5,000 (5% of 100,000) every year until you sell the bond or else until the maturity date in 2020.
DBR 2.50% 04/01/21:
This is a German Government Bond with a 2.50% coupon that matures in January 2021. For example, suppose you bought 100,000 nominal at a price of 100.00. This means that you should receive a coupon of €2,500 (2.5% of 100,000) every year until you sell the bond or else until the maturity date in 2021.
Corporate bonds are issued by companies ranging from large institutions with varying levels of debt to small, highly leveraged, start-up corporations. The most important difference between corporate bonds and government bonds is their risk profile. Corporate bonds usually offer a higher yield than government bonds because their credit risk (see risks section below) is generally greater. This is not always the case, however, as we have seen more recently.
Example of a Corporate Bond
Bank of Ireland 4% 01/2020:
This is a Bank of Ireland bond with a 4% coupon which should mature in January 2020. For example, suppose you bought 100,000 nominal at a price of 100.00. This means that you should receive a coupon of €4,000 (4% of 100,000) every year until you sell the bond or else until the maturity date in 2020.
You should also receive back the nominal invested at maturity or if sold prior to maturity you will receive the nominal multiplied by the market price at the point of sale.
Note, the prices quoted in the above examples will vary over the lifetime of the bonds.
Commission costs are 0.50% of the transaction value, subject to minimum commission of €100 per bond and maximum wholesale book access charge of 0.20% of the value of the trade. (Other fees apply).
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