- Unless you have first-rate financial-analysis skills, go for rated rather than unrated bonds.
- Spread your investments across bond issuers and look for different expiry dates.
- Before you invest, thoroughly investigate the company and the bond (including the bond's status if the company fails).
- If your adviser doesn't understand company bonds well, find another adviser. Don't accept uninformed advice.
- Look for relatively higher returns from subordinated bonds.
- Keep in mind the returns available from government-guaranteed term deposits over the next year.
Other bonds
New Zealand government bonds can be bought by ordinary investors. They come with the highest Standard and Poor's rating (AAA). If you want access to the higher yields available on the wholesale market the minimum investment is $10,000. In April 2009 the wholesale market yields on bonds maturing in 2015 were around 4 percent. You can also buy retail issues of government bonds (called Kiwi Bonds) with a minimum investment of $1000.
Some bonds operate like collective investment schemes, where the money raised is invested in financial assets and the bond issuer administers the investments. These are called "structured bonds". There have been some high-profile failures of structured bonds recently: Macquarie's Generator (Commodity) Bonds and Absolute Capital's PINs now trade at what's called "distressed" yields ... with serious capital losses for many investors.
More information
- NZDX: www.nzx.com
- AMP Capital NZ Fixed Interest Fund: www.amp.co.nz
- Company bond rates: www.interest.co.nz
More from consumer.org.nz
Report by Susan Guthrie.
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