BOND

INVESTMENT
Manaloz, Rose Anne T.
INVESTMENT
Three Distinct Group
 Investment divided into 3 distinct group

OWNERSHIP
means becoming a partial owner

LENDING
Allow investors to be like a bank

CASH EQUIVALENTS
investments that can readily be converted into cash
 Bond Investment Strategy
Matching Strategy Laddered Strategy
Generate periodic Funds are evenly
income to match their allocated to bonds in
periodic expenses. each of several different
maturity classes.

Barbell Strategy Interest Rate Strategy

Funds are allocated to Funds are allocated in a
bonds with a short term manner that capitalizes on
to maturity as well as interest rate forecast.
bonds with a long term
to maturity.
VALUATION AND RISK OF
INTERNATIONAL BONDS
BONDS
VALUATION AND RISK OF INTERNATIONAL BONDS

1 Influence of Foreign Interest Rate Movements

As the risk-free interest rate of a currency changes, the required
rate of return by investors in that country changes as well.

2
Influence of Credit Risk
As the perceived credit (default) risk of international bond
changes, the risk premium within the required rate of
return by investors are affected.
International
BONDS
3
Influence of Exchange Rate Fluctuations
Changes in the value of foreign currency denominating a
bond affect the cash flows generated from the bond and
thereby affect the return to investors who invested it.
International Bond
DIVERSIFICATION
International Bond Diversification
Institutional investors diversify their bond
Reduction of portfolio internationally to reduce exposure
Interest rate Risk to interest rate risk.

Investment in bonds issued by corporations

Reduction of Credit from a single country can expose investors
Risk to a relatively high degree of credit risk.

A smaller proportion of their foreign security

Reduction of holdings will be exposed to the depreciation
Exchange Rate Risk of any particular foreign currency.
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