What's on offer and what to look out for

PUBLISHED : Sunday, 30 January, 2011, 12:00am
UPDATED : Sunday, 30 January, 2011, 12:00am

While bonds are sold by banks in Hong Kong, investors can buy bond funds in the form of unit trusts through banks and through insurance plans. The mandatory pension fund also offers a range of bond funds.

When dealing directly in bonds, investors should look out for buying and selling fees, custodian charges, and fees for interest collection and redemption. These vary from bank to bank.

DBS Bank, for example, charges up to 0.5 per cent of the nominal amount on all secondary transactions. Standard Chartered charges 0.75 per cent.

HSBC, which has recently launched an online bond trading platform for retail investors - the first for Hong Kong, it claims - says it has for now waived all fees.

The bonds available online on the HSBC platform are all investment-grade, meaning they are rated above A. The minimum amount for a bond purchase on the HSBC online platform is HK$50,000.

Apart from charges, bond investors should look out for secondary-market liquidity because selling bonds back to the market can be tricky without it. HSBC says it will provide liquidity guarantee and bond holders will be able to sell their investments any time.

The liquidity of many Asian bonds is not as good as US bonds. Those that are denominated in local currencies tend to have wide spreads, which is a result of low liquidity. So bond holders who are also looking to make currency gains through bonds might end up buying high and selling low.

Since bonds are not traded on any exchange, pricing is not as transparent as equities. In the event of a liquidity crisis, investors might have to sell at a deep discount. However it might be a good opportunity for buyers.