Buying and Selling Agency Bonds.

Posted May 8th, 2012 by admin.

Agency securities are generally bought and sold through brokers and are likely to include fees or transaction costs.

The agency bond market in which individuals might participate is considered relatively liquid. However, not all kinds of agency bond issues are considered liquid, including some of which may be structured for a particular issuer or class of investors and may not be suitable for individual investors. Investment dollar minimums may make buying and selling individual bonds less suitable to many individual investors than buying an agency bond fund or U.S. Treasuries directly. Investors should take into account that the tax status of various agency bond issues varies depending on the agency issuer. As with any investment, it is important to understand the work of the agency or enterprise that is issuing the bonds and know the credit rating of the issue. This allows an investor to know the basis on which a bond is being issued.

For more information, please visit: http://www.investinginbonds.com/

Posted in Corporate and Government Bond Issue Tagged as administration of financial companies, anonymous, asset management, asset management companies, asset protection, Asset/Wealth Management Company, assets, back office, Bank (Corporate) Issuer, bearer shares, business in Switzerland, buy a swiss company, buy a swiss financial company, Cash Transfer Management, compliance, Credit/Debit card Issuers, CTA’s Company, discretion, due diligence, equities, equity management, establish a company in Switzerland, establish a financial company in Switzerland, Fiduciary Company, fiduciary services, Financial Advisory Management Company, Financial Intermediary, financial or trading activities, financial services, form a company in Switzerland, Fund Manager in Cayman Islands, FX Trading Company, geneva, Hedge Fund, hedge funds, holding company, hybrid and structured financial products, Initial Public Offering, Investment Advisory Company, Investment Banking Company, investments, IPO, issue bonds, issue debts, LBA, legal process, Life Insurance Management, low tax, managed, managed accounts, merchant account, online banking, options and futures, Portfolio Management Company, portfolios, prestigious, Private Banking Advisory Company, protect assets, real estate, registered agent in Switzerland, Regulated Swiss Financial Company is an effective instrument for: Money Transfer Management, Relationship Management Company, Securities Dealers Company, setup, share listing, SIX, sophisticated financial services, Stocks/ Commodity Trading Company, SWIFT, Swiss bank accounts, swiss bonds, Swiss exchange, Swiss Financial, swiss financial company, Swiss Financial Company & Trust SA, Swiss franc, swiss regulations for financial activities, swiss securities issuance, swiss shares, switzerland, tarder, tax process, trading, trading program, Trustee Company, wealth management, Zug, zurich

Types of Structures of Agency Bonds

Posted May 8th, 2012 by admin.

As noted above, most agency bonds pay a fixed rate of interest or fixed coupon rate semi-annually. Most agency bonds are non-callable or bullet bonds. Like all bonds, agency bonds are sensitive to changes in interest rates—when interest rates increase, agency bond prices fall and vice versa.

However, in addition to fixed rate coupon and non callable agency bonds, agencies do structure their bond issues to meet different investor needs.

Variable or floating coupon rate agency bonds: so-called “floating rate” or “floaters” are agency bonds that have interest rates that adjust periodically. Adjustments are usually linked to an index such as U.S. Treasury bond yields or LIBOR according to a predetermined formula (with limits on how much the interest or coupon rate can change).

No-coupon agency bond notes or “discos”: no-coupon discount notes are issued by agencies to meet short-term financing needs and are issued at a discount to par value. Investors who sell such discos prior to maturity may lose money.

Callable agency bonds with “step up” coupon rates: callable agency bonds that have a pre set coupon rate “step up” that provides for increases in interest rates or coupon rate as the bonds approach maturity to minimize the interest rate risk for investors over time. Step ups are often called by issuers at a time of declining interest rates. Declining interest rates may accelerate the redemption of a callable bond, causing the investor’s principal to be returned sooner than expected. As a consequence, an investor might have to reinvest principal at a lower rate of interest.

The interest from most but not all agency bond issues is exempt from state and local taxes and it is important for investors to understand the tax consequences of agency bonds; some of the biggest agency bond issuers such as GSE entities Freddie Mac and Fannie Mae are fully taxable for example. Capital gains or losses when selling agency bonds are taxed at the same rates as stocks. Consult your financial advisor before determining whether agency bonds are a suitable investment for you.

For more information, please visit: http://www.investinginbonds.com/

Agency Bonds

Posted May 8th, 2012 by admin.

Agency bonds are issued by two types of entities—1) Government Sponsored Enterprises (GSEs), usually federally-chartered but privately-owned corporations; and 2) Federal Government agencies which may issue or guarantee these bonds—to finance activities related to public purposes, such as increasing home ownership or providing agricultural assistance. Agency bonds are issued in a variety of structures, coupon rates and maturities.

Each GSE and Federal agency issues its own bonds, with sizes and terms appropriate to the needs and purposes of the financing. There are usually minimums to invest in agency bonds—$10,000 for the first investment and increments of $5,000 for additional investments. Investing in Ginnie Mae Federal Agency bonds requires a $25,000 minimum investment. The degree to which an agency bond issuer is considered independent from the federal government impacts the level of its default risk. The interest from most but not all agency bond issues is exempt from state and local taxes; some of the biggest issuers such as GSE entities Freddie Mac and Fannie Mae are fully taxable.

In general the agency bond market is considered a liquid market, in which investments can quickly and easily be bought and sold. However, as explained below, some agency bond issues have features that make the bond issues more “structured” and complex, which can reduce liquidity of these investments for investors and make them unsuitable for individual investors.

Agency Bonds issued by GSEs—Bonds issued by GSEs such as the Federal Home Loan Mortgage Association (Freddie Mac), the Federal Home Loan Mortgage Association (Fannie Mae) and the Federal Home Loan Banks provide credit for the housing sector. Federal Agricultural Mortgage Corporation (Farmer Mac); the Farm Credit Banks and the Farm Credit System Financial Assistance Corporation do the same for the farming sector. The bulk of all agency bond debt—GSEs and Federal Government agencies—is issued by the Federal Home Loan Banks, Freddie Mac, Fannie Mae and the Federal Farm Credit banks. GSEs are not backed by the full faith and credit of the U.S. government, unlike U.S. Treasury bonds. These bonds have credit risk and default risk and the yield on these bonds is typically slightly higher than on U.S. Treasury bonds.

Some GSEs such as Fannie Mae and Freddie Mac are publicly traded companies that register their stock with the SEC and provide publicly available documents such as annual reports on the SEC website.

Agency Bonds issued by Federal Government agencies—Bonds issued or guaranteed by Federal Government agencies such as the Small Business Administration, the Federal Housing Administration and the Government National Mortgage Association (Ginnie Mae) are backed by the full faith and credit of the U.S. government, just like U.S. Treasury bonds.* Full faith and credit means that the U.S. government is committed to pay interest and principal back to the investor at maturity. Because different bonds have different structures, bonds issued by federal government agencies may have call risk. In addition, agency bonds issued by Federal Government agencies are less liquid than Treasury bonds and therefore this type of agency bond may provide a slightly higher rate of interest than Treasury bonds.

For more information, please visit: http://www.investinginbonds.com

Investment Options: Why Bonds?

Posted April 23rd, 2012 by admin.

Saving for major financial goals such as retirement or a college tuition takes time and investment. There are several different options for investing, and it’s important to diversify your portfolio. Learn why bonds might be a good choice for your savings goals.

What is a bond?

A bond is essentially an IOU from a government, corporation or other entity known as an issuer. In exchange for the bond, the issuer agrees to pay you back its face value as well as paying you interest over the life of the bond. There are several different types of bonds, including U.S. securities, corporate bonds, municipal bonds, mortgage and asset-backed securities, among many others.

Why bonds?

Bonds help diversify your portfolio. Bonds may not provide as much of a yield as stocks, but they’re usually more stable. They can help you achieve your long-term savings goals with less risk than volatile stocks.

Bonds provide a steady source of income. These fancy versions of IOUs pay semi-annually, so you know that you’ll get a return on a set date. Ultimately, you’ll get back what you paid for the bond initially while also earning interest the entire time.

Bonds are the most secure option next to cash. Because they provide such a steady source of income and are fairly stable, bonds are your next best option for saving next to cash. Use this stability to enhance your overall portfolio.

There are several factors to consider when deciding when to get bonds and what kind to purchase.

Price and interest rates. Bonds move in the opposite direction of interest rates. They’re more expensive when interest rates are low, but they’re cheaper when rates are higher. Over time, this discrepancy evens itself out, so it’s important to focus on a bond’s maturity and view it as a long-term investment.
Maturity. Bonds can be purchased for different lengths of time, including short, medium and long-term maturities. Short-term bonds are typically paid back in five years, medium ones take 5-12, and long-term are paid back in more than 12 years. Shorter terms tend to provide more stability but offer less rewards, while long-term bonds usually have greater rewards because to account for market fluctuations.

Bonds are just one of the many investment options you have for long-term savings. Whether you are looking to enhance your retirement funds or save for a college tuition, bonds are a fairly stable option for diversifying for portfolio.

For more information, please visit: http://blog.accesshorizon.com/

Posted in Corporate and Government Bond Issue

Why Companies Issue Callable Bonds.

Posted April 16th, 2012 by admin.

The primary reason that companies issue callable bonds rather than non-callable bonds is to protect them in the event that interest rates drop. For instance, if a company issues bonds that pay investors the going rate of 7% annually in interest, and then the going rate declines to 6%, the company may redeem its callable bonds, replacing them with new bonds paying 6% annually.

This is especially crucial for bonds with maturity dates 20 years or more into the future. Without callability, a company might issue bonds with a high interest rate and not be able to change the rate for 20 years. The company could find itself locked into a high rate for many years at a time when new bonds are being issued with much lower interest rates. The company would be at a competitive disadvantage if it continued to finance its debts at the old, higher rate.

Companies are often willing to pay a premium to redeem the bonds before maturity, to avoid the above scenario. Callability enables the company to respond to changing interest rates, refinance high-interest debts, and avoid paying more than the going rates for its long-term debts.

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Why do companies issue Warrants and Convertibles?

Posted April 16th, 2012 by admin.

A company that wishes to sell common stock must usually offer the new stock at 10 percent to 20 percent below the market price for the flotation to be a success. However, if warrants are sold for cash, exercisable at 20 percent to 50 percent above the market price of the common, the result will be equivalent to selling common stock at a premium rather than a discount; and if the warrants are never exercised, the proceeds from their sale will become a clear profit to the company.

There is something immediately suspicious about an argument like this. If the shareholder inevitably wins, the warrant holder must inevitably lose. But that doesn’t make sense. Surely there must be some price at which it pays to buy warrants. Suppose that your company’s stock is priced at $100 and that you are considering an issue of warrants exercisable at $120. You believe that you can sell these warrants at $10. if the stock price subsequently fails to reach $120, the warrants will not be exercised. You will have to sold warrants for $10 each, which with the benefit of hindsight proved to be worthless to the buyer. If the stock price reaches $130, say, the warrant will be exercised. Your firm will have received the initial payment of $10 plus the exercise price of $120. on the other hand, it will issued to the warrant holders stock worth $130 per share. The net result is a standoff. You have received a payment of $130 per share in exchange for a liability worth $130.

Think now what happens if the stock price rises above $130. Perhaps it goes to $200. in this case the warrant issue will end up producing a loss of $70. This is not a cash outflow but an opportunity loss. The firm receives $130, but in this case it would have sold stock for $200. on the other hand, the warrant holders gain $70: they invest $130 in cash to acquire stock that they can sell, if they like, for $200.

Our example is oversimplified- for instance, we have kept quiet about the time value of the money and risk- but we hope it has made the basic point. When you sell warrants, you are selling options and getting cash in exchange. Options are valuable securities. If they are properly priced, this is a fair trade- in other words; it is a zero NPV transaction.
Managers often use similar arguments to justify the sale of convertibles. For example, several surveys have revealed two main motives for their use. A large number of managers look on convertibles as “cheap debts”. A somewhat higher proportion regards them as a deferred sale of stock at an attractive price. The difference between the market value of the convertible and that of the straight bond is therefore the price investors place on the call option. The convertible is cheap only if this price overvalues the option.
A convertible bond gives you the right to but stock by giving a bond. Bondholders may decide to do this, but then again they may not. Thus issue of convertible bond may amount to a deferred stock issue. But if the firm needs equity capital, a convertible issue is an unreliable way of getting it.

Notice that convertibles tend to be issued by the smaller and more speculative firms. They are almost invariably unsecured and generally subordinated. Now put yourself in the position of a potential investor. You are approached by a small firm with an untried product line that wants to issue some junior unsecured debt. You know that if things go well, you will get your money back, but if they do not, you could easily be left with nothing. Since the firm is in the new line of business, it is difficult to assess the chances of trouble. Therefore you don’t know what the fair rate of interest is.
Convertible securities and warrants make sense whenever it is unusually costly to assess the risk of debt or whenever investors are worried that management may not act in the bondholder’s interest. You can also think of convertible issue as a contingent issue of equity. If a company’s investment opportunities expand, its stock price likely to increase, allowing the financial manager to call and force conversion of a convertible bond into equity. Thus the company gets fresh equity when it is most needed for expansion. Of course, it is also stuck with debt if the company does not prosper.

The relatively low coupon rate on convertible bonds may also be a convenience for rapidly growing firms facing heavy capital expenditures. They may be willing to give up the conversion option to reduce immediate cash requirements for debt service. Without the conversion option, lenders might demand extremely high (promised) interest rates to compensate for the probability of default. This would not only force the firm to raise still more capital for debt service but also increase the risk of financial distress. Paradoxically, lenders attempt to protect themselves against default may actually increase the probability of financial distress by increasing the burden of debt service on the firm.

Underwriting Bond Issues.

Posted April 16th, 2012 by admin.

In acting as an intermediary between a bond issuer and a bond buyer, the investment banker serves as an underwriter for the bonds. When investment bankers underwrite the bonds, they assume the risk of buying the newly issued bonds from the corporation or government unit; they then resell the bonds to the public or to dealers who sell them to the public. The investment bank earns a profit, based on the difference between its purchase price and the selling price; this difference is sometimes called the underwriting spread.

When the investment banker works with a client corporation or government unit, it generally also prepares required documents for Securities and Exchange Commission (SEC) filing, helps set a price for the issue, and takes the lead in forming and managing an underwriting group–also known as a purchase group or syndicate. This syndicate spreads the risk of the new issue to a larger number of participating investment bankers and improves the likelihood of selling all of the newly issued bonds.

Sometimes the investment banker markets a new issue but does not underwrite it. The investment banker simply acts as a sales agent under a best efforts agreement, promising to do its utmost to market the bonds. The investment banker has the option to buy the bonds and usually purchases only enough bonds to meet buyer demand, receiving a commission on the bonds sold.

For more information, please visit:

Posted in Corporate and Government Bond Issue

Bond Ratings.

Posted April 10th, 2012 by admin.

Just as individuals have their own credit report and rating issued by credit bureaus, bond issuers generally are evaluated by their own set of ratings agencies to assess their creditworthiness. There are three main ratings agencies that evaluate the creditworthiness of bonds: Moody’s, Standard & Poor’s, and Fitch. Their opinions of that creditworthiness—in other words, the issuer’s financial ability to make interest payments and repay the loan in full at maturity—is what determines the bond’s rating and also affects the yield the issuer must pay to entice investors. Lower-rated bonds generally offer higher yields to compensate investors for the additional risk.

How bond ratings work

Ratings agencies research the financial health of each bond issuer (including issuers of municipal bonds) and assign ratings to the bonds being offered. Each agency has a similar hierarchy to help investors assess that bond’s credit quality compared to other bonds. Bonds with a rating of BBB- (on the Standard & Poor’s and Fitch scale) or Baa3 (on Moody’s) or better are considered “investment grade.” Bonds with lower ratings are considered “speculative” and often referred to as “high yield” or “junk” bonds.

Moody’s, Standard & Poor’s and Fitch append their ratings with an indicator to show a bond’s ranking within a category. Moody’s uses a numerical indicator. For example, A1 is better than A2 (but still not as good as Aa). Standard & Poor’s and Fitch use a plus or minus indicator. For example, A+ is better than A, and A is better than A-.

Remember that ratings aren’t perfect and can’t tell you whether or not your investment will go up or down in value. Before using ratings as one factor in your investment selection process, learn about the methodologies and criteria each ratings agency employs. You might find some methods more useful than others’.

Investment grade and high yield bonds
Investors typically group bond ratings into two major categories:
Investment grade refers to bonds rated Baa3/BBB- or better.
High Yield (also referred to as “non-investment grade” or “junk” bonds) pertains to bonds rated Ba1/BB+ and lower.
You need to have a high risk tolerance to invest in high yield bonds. Because the financial health of an issuer can change—no matter if the issuer is a corporation or a municipality—the rating services can downgrade or upgrade a company’s rating. It is important to monitor a bond’s rating regularly. If a bond is sold before it reaches maturity, any downgrades or upgrades in the bond’s rating can affect the price others are willing to pay for it

For more information, please visit: http://www.my-swiss-company.com/bonds_issue/bonds.php

Cleantech Switzerland Export Platform

Posted March 18th, 2012 by admin.

The demand for cleantech solutions is increasing globally. In order to help Swiss companies gain easier access to world markets, the Federal Administration estab-lished the Cleantech Switzerland Export Platform.

As a leading location for innovation worldwide, Switzerland has highly specialised companies that are well positioned to develop and market cleantech products and services around the world. Switzerland’s image of an environmentally friendly, nature loving country combined with active measures to protect its environment lend greater credibility to our country when it comes to marketing cleantech products and services
.
Helping Swiss SMEs to penetrate markets
The Cleantech Switzerland Export Platform helps Swiss SMEs in the cleantech sector to gain access to promising export markets with significant growth potential.
The Cleantech Switzerland Export Platform performs four key tasks:

Bundling offerings within Switzerland
Identifying demand in export markets
Establishing ties with project initiators, investors, government agencies and foreign companies to generate business for Swiss companies in the cleantech sector
Increasing the visibility of Switzerland’s cleantech sector worldwide.
Swiss companies interested in service offerings of the export platform can register here for free.

Federal start-up funding

Created as an association, the Cleantech Switzerland Export Platform will receive federally-funded support from the Business Network Switzerland (Osec) over the next few years. This support will help the association to get started. In the medium-term, responsibility for main-taining the export platform will then be transferred to the private sector.

For more information, please visit: http://www.cleantech.admin.ch/

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Financial sector stability: allowing the issue of CoCos in Switzerland

Posted March 18th, 2012 by admin.

Berne, 24.08.2011 – Changes in withholding tax should allow Swiss companies to issue their bonds under competitive conditions in Switzerland. These changes would also apply to the newly created contingent convertible bonds (CoCos). Their issue in Switzerland ensures the application of Swiss law, thereby increasing the legal security of this instrument. At the same time, these changes should strengthen the security function in withholding tax. Today, the Federal Council approved a dispatch with corresponding measures for the attention of parliament. Initial measures in this vein were introduced within the scope of the bill on dealing with systemic risks of big banks (“too big to fail” or TBTF).

In the dispatch of 20 April 2011 on dealing with the systemic risks of big banks, the Federal Council submitted proposals to parliament on how financial sector stability could be strengthened. The package of measures is designed to prevent the state from having to use tax revenues in the future in order to bail out systemically important companies. So-called CoCos are one of the instruments proposed by the Federal Council to strengthen the capital base of banks. These are bonds that are converted into equity capital after a specific event occurs.

At the time, the Federal Council also proposed tax measures to promote the issue of bonds, and thus also CoCos, in Switzerland as well as to boost the Swiss capital market. In doing so, it decided on a staggered introduction of the tax measures. In a first step, on 20 April 2011, the abolition of issue tax on bonds and money market paper was proposed and issue tax exemption for participation rights stemming from the conversion of CoCos.

In the dispatch now available, amendments to withholding tax will be submitted in a second step. The goal of this is to enable bonds, including CoCos, to be issued under competitive conditions in Switzerland.

The tax environment applicable at present prevents the issue of bonds, and thus CoCos, under competitive conditions in Switzerland. The main reason for this is that the current withholding tax is levied by the issuer (so-called debtor principle) independently of the creditor’s person on bond interest and thereby also affects tax-exempt institutional investors such as pension funds, for instance. This has led to the majority of Swiss companies issuing their bonds abroad and not in Switzerland. This entails additional costs for the companies and Switzerland loses tax receipts because added value is not created in Switzerland. In addition, the withholding tax fails partially in its security function because it is not levied on interest from foreign bonds, although this income is subject to income tax.

Against this backdrop, the Federal Council proposes switching from the debtor principle to the paying agent principle in the case of withholding tax on interest from bonds and money market paper.

In future, the Swiss paying agent (as a rule a bank) and not the issuer should levy the tax (so-called paying agent principle). The former knows its clients and is able to impose the tax depending on the creditor’s person. In future, only interest payments to natural persons domiciled in Switzerland will be subject to the Swiss withholding tax but now this will also be the case for foreign bonds. Domestic and foreign investors who are not subject to income tax in Switzerland may be exempted from withholding tax. With the proposed amendments, withholding tax is aimed specifically at natural persons domiciled in Switzerland and thereby at securing Swiss income and wealth taxes. The paying agent principle is not a new concept. It already applies in the case of the taxation of savings income agreement with the EU and represents the technical basis for the bilateral final withholding taxes which are being sought with Germany and the UK.

The Federal Council is thereby pursuing three goals:

· Strengthening financial sector stability thanks to the possibility of being able to issue CoCos from Switzerland:

Legal certainty concerning CoCos is considerably increased when Swiss law is applicable, which is presupposed when they are issued in Switzerland. This is crucial in the case of looming insolvency so that CoCos can be converted into equity capital as smoothly as possible.

· Increasing the attractiveness of the country by stimulating the Swiss capital market ue to the new tax framework, it will be possible for Swiss companies to issue domestic bonds and money market paper at internationally competitive conditions from Switzerland.

· Increasing tax equity by strengthening the security element of withholding tax:

According to current law, external financing using loans is carried out largely via foreign group companies (the debtor is not a Swiss national) so that the interest on these loans is not covered by the currently applicable withholding tax. This mechanism is to be abandoned, which will strengthen the security function of withholding tax and thereby the accurate levying of income tax and wealth tax.

The legislative amendments could come into force on 1 January 2013 at the earlies

All the information is taken from: http://www.efd.admin.ch/