Products Regular Revenue with Bonds

Regular Revenue with Bonds

Bonds are a sensible option for investors who want to use their investment to generate stable revenue in the form of interest. They are defensive investments and help to diversify the portfolio.

Regular interest payments with bonds

Regular Interest Payments with Bonds

Bonds are the ideal investment if you want to focus on regular interest. Generally, bonds have a prescribed term during which fixed or variable interest is paid in the form of a coupon.

The interest rates at which bonds are issued depend on the capital market conditions and the creditworthiness of the borrower. In liquid markets with low base rates, solvent countries and companies pay only low interest. Higher returns are possible with foreign currency bonds, but this is also accompanied by foreign exchange risk for the investor.

For the 26th time in a row, Credit Suisse is the market leader in issuing Swiss franc bonds in Switzerland.

International Financing Review of the Year 2016

Invest Defensively with Bonds

Bonds are a defensive investment. They are less affected by movements in the financial markets than equities, for example. One risk, however, is the creditworthiness of the issuer. The term, duration, and interest environment also need to be considered carefully as the price of a bond decreases during the term if the interest level increases.

Only some bonds are traded on the stock exchange. But, at Credit Suisse, over-the-counter products can also be purchased and sold independently with a securities safekeeping account.

Types of Bonds

With traditional bonds, issuers such as companies or the public sector borrow money at a fixed interest rate for a defined term. Interest is paid regularly throughout the term of the bond. At the end of the term, you will receive the amount borrowed in full. In addition, there are also special bonds, such as those with variable interest rates, callable bonds or the option to convert the bond into shares.

Medium-term bonds are issued by banks at a fixed interest rate. They have a term between two and eight years. The amount can be freely selected and even small denominations are possible. Unlike other bonds, medium-term bonds are not traded on the stock exchange. However, early amortization is possible for a fee. At Credit Suisse, there are no safekeeping fees for medium-term bonds.

With money market investments, money is invested in the short term at a predefined interest rate. However, a minimum amount is required for these types of fixed-term deposits. In Switzerland, the contractual party is Credit Suisse. Money market investments can lose their appeal when interest levels are low.

Potential Risks

Potential Loss

The market value of a fixed-income security may fall below the redemption price at maturity during its term. If an issuer fails to meet its payment obligations under a fixed-income security, the investor may lose part or all of his or her invested capital. In the case of direct investments in the money market, the investor can suffer a partial or total loss if the counterparty (other domestic or foreign counterparty or Credit Suisse AG) becomes insolvent.

Market Risk (Interest-Rate Risk)

Investors bear the risk that interest rate fluctuations may have a negative impact on the value of the fixed-income investment during its term.

Issuer Risk

Investors are subject to the credit risk of the issuer of the fixed-income investment. Credit risk is the risk of insolvency on the part of the borrower. It may result in a partial or total loss of the capital invested.

Guarantor Risk

The involvement of a guarantor reduces the default risk, as the guarantor ensures full or partial payment of the redemption price in the event of the issuer's insolvency. Investors bear the risk that guarantors may also not be able to meet their obligations or may become insolvent.

Liquidity Risk

The marketability of fixed-income investments and securitized money market investments depends on whether a price is offered in the market. In an illiquid market, investors run the risk of either having to retain the investment until the end of the term or having to sell it before maturity at an unfavorable price. Determining a fair value and comparing the price may also be difficult, if not impossible, as there are sometimes no counterparties in the market.

Foreign Exchange Risk

Investors may be exposed to foreign currency risk if the fixed-income investment is listed in a currency other than the investors' home currency.

Risk Concentration

Investors who purchase many bonds of the same borrower or issuer run the risk of disproportionately high losses in the event of bankruptcy. Carefully considered diversification of the portfolio is required to prevent risk concentration. 

Specific Risks of Medium-Term Bonds

The invested capital is tied up for the term of the note and can only be cashed out prematurely from the bank for a fee.

Credit Risk of Money Market Investments

The investor bears the credit risk of the issuer. In the case of fiduciary investments, the issuers are foreign banks. In the event of insolvency of the borrower, repayment is not guaranteed. For money market investments issued by Credit Suisse, a claim can be made against Credit Suisse.

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