Bonds are debt instruments in the form of a security issued by a certain specific government, corporation, or other issuers to raise funds. The issuer usually will repay the principal amount along with the interest on the coupon later when the payment is due.
Benefits of investing in bonds
- Generally, bonds may provide a higher rate of return than time deposits with the same maturity or time period.
- Bonds should provide a constant or regular interest income during volatile periods
- Bonds can be redeemed before maturity.
- There are a variety of bonds with a greater selection period.
- When bond prices rises then capital appreciation results in price gains.
Government bonds or usually called government bonds is the case where there is a bond issued by a state government denominated under a specific country. Government bonds denominated in foreign currency are then called international bonds (sovereign bonds).
Government bonds are commonly referred to as “risk-free bonds” because the state government can raise taxes or print money to pay off payment of the bond at maturity. However we note that there is a very rare recorded case of where these bonds defaulted as what happened to the Russian government in 1998, or the so called the Russian financial crisis.
An example that may come to mind is the U.S. government bonds in the so-called “Treasury securities” are denominated in U.S. dollars because the U.S. dollar in theory is an investment in risk-free. In this case of ‘risk free’ meaning it may be safe in means of credit risk. Yet, there are other risks such as exchange rate risk for foreign investors where the value of the U.S. dollar may be weakening against other currencies. Also on the risk side of inflation which at maturity repayment of the bonds that have gained valued to the investor may experience weakening purchasing power due to inflation greater than the yield obtained. Many governments issue inflation indexed bonds that should protect investors against inflation risk.
Government bonds may also contain risks if issued by a government whose country has the capability of financial policies that are less than adequate. Let’s say for example that Bulgaria has a degree of dependency on the world economy and world economic institutions higher than other countries such as America. Some of the country bonds were issued a rating of A-scale after 2004, but in February 2006 Standard & Poor’s rated long-term debt towards Bulgaria in their domestic currency on a scale of BBB +, and thus this may be an example of ranking from a result of decades of decreased risk (and increase in rank).
Bond Type Indonesia
Rating: B + / Bb Published by: Directorate General of Treasury, Ministry of Finance of the Republic of Indonesia
1. Government Bonds (SUN)
2. Treasury Bills (NES) a maximum period of 12 months with interest payments discounted such a system.
3. Bonds; period of over 12 months
4. Without coupons: implicit interest payments reflected in the difference between the price at the time of issuance and the par value received at maturity
5. With coupon: interest payments calculated by a percentage of par value and paid periodically
6. Fixed interest
7. Floating with interest
8. Foreign currency denominated bonds
9. Bonds of the Republic of Indonesia (ORI) is a form of retail securities sold to public investors at par value per share of Rp. 5 million
of Coupon Bonds
Contact : Director of financial management (Direktorat Pengelolaan Moneter) – (Division of transacation settlement on monetary affairs (Bagian Penyelesaian Transaksi Pengelolaan Moneter) (PTPM)