Corporate Bonds Market
Navigating the corporate bonds market and choosing investment opportunities with the clients’ goals in mind has traditionally taken hours of analysis and teams of people to achieve. BondIT is the asset management software solution removing unnecessary time and resourcing from the equation. We have developed an intuitive portfolio optimization platform designed to manage fixed income portfolio management for portfolio manager and advisors alike. Using the latest data science and software development methodologies, we have designed a completely customizable asset management tool you can use to generate instant and compliant investment proposals, evaluate rebalancing fixed income options and choose which municipal bonds and corporate bonds to buy to not only meet your investors’ objectives but also exceed them.
What is the corporate bonds market?
Fixed income investments come in the form of individual bonds as well as mutual bond funds and fixed income ETFs. There are two types of fixed income instruments available for investors: government bonds and corporate bonds. Government bonds, also known as municipal bonds, are considered lower fixed income risk investment opportunities. Treasury bonds and other state and federal government bonds can also come with tax offsets which make them very attractive fixed income assets. Not only is the investor accessing low risk fixed income securities, but they are also getting a tax break on the income generated from those fixed income bonds helping to increase the overall yield of that investment opportunity.
Investment, however, doesn’t come without risk so portfolio managers and advisors must rate bonds against the investment objectives of their clients. While the risk of default on a government bond is relatively low, there is still an interest rate risk that the investor must mitigate. When interest rates are high, this is ideal for investors seeking these types of bonds. They stand to make a higher return on their investment with interest payments (or coupon payments) comparatively higher. When interest rates are low, that income is also lower. Should an investor purchase these types of bonds when the interest rate is high, there is a risk that the bond is called early in response to lowered interest rates. When the bond is called early, the initial capital investment is returned by the bond issuer and new bonds are then issued at the lower interest rate. This can significantly impact the projected income of the bond over its original term and new investment opportunities need to be sought to offset the loss of that project income.
There is also the risk of the tax offset initially offered on municipal bonds changing before the bond matures. Changing governments can cause changes to which bonds are considered tax free investments and which aren’t. A bond offering tax-free income suddenly changing to taxable income will also significantly affect the projected income of that investment, with perhaps only short term income remaining tax-free.
The corporate bonds market works similarly to the municipal bonds market but there are generally higher risk and a higher return on these types of bonds. Corporate bonds are not tax-free but because they are usually offered by entities with a lower credit rating than government organizations, the interest rate will usually be higher making the regular interest payments on these bonds also higher. A high yield of corporate bonds is ultimately the portfolio manager’s and advisor’s ideal outcome. They will seek to diversify fixed income trade to ensure that risk is mitigated and wealth protected for their clients. BondIT assists managers and advisors by generating instantly compliant investment proposals for both municipal and corporate bonds market opportunities. Our powerful ‘Solve Anyway’ feature even returns strategies when constraints appear infeasible.
Junk bonds, or non-investment grade corporate bonds, are the highest risk corporate bond type offering higher yields correlate to their risk factor. These types of bonds are usually issued by corporate entities with a low credit rating making them at substantially higher risk of default than other investments. However, the higher the risk the higher the possible return. Interest payments on these types of bonds can be highly lucrative if the corporate entity that has issued them remains in business and can meet their financial obligations until the bond matures.
If they are not able to sustain their business throughout the term of the bond and enter liquidation, then the investor risks losing their capital investment funds as well as the promised interest payments. Liquidators will sell off whatever assets the business has and then distribute the proceeds of those sales amongst creditors. There is no guarantee that those proceeds will be enough to cover the return of the initial investment made.
BondIT assists managers and advisors with investment analysis and proposals by taking the guesswork out of managing diverse fixed income funds. Using the standard fixed income analytics or custom analytics of your choice, you can generate sustainable investment proposals for your clients in a fraction of the time it traditionally takes. BondIT analyzes you, returning multiple data points that you can choose to drill directly into from its user-friendly interface.
To find out how BondIT can increase your business efficiency and reduce your resourcing time and costs, get in contact with a consultant today. We can take you through exactly what BondIT is capable of offering your business and how you can customize our asset management platform to work within individual investor’s constraints and help your investors to meet their income objectives. Speak with a consultant today.