The advantages of trading bonds
Diversification
Bonds are an ideal diversification tool for investors. There are a number of reasons why investing in bonds can complement other investment assets in a portfolio:
- bonds are more predictable in terms of yield and more stable than shares,
- the principal determining factors that affect the price of bonds are not necessarily the same as those governing the price of other assets. Portfolio diversification across different asset types means losses in one area can be compensated by a rise in the value of another,
- the main risks of investing in bonds can differ from those of other investments. This enables investors to avoid being overly exposed to the same kind of risk.
Predictable returns
When investing in a fixed-rate bond, the interest and the repayment at maturity are known in advance. Investors know the yield to maturity when the security is purchased.
Transparency and monitoring credit risk
Ratings published by credit agencies, along with the return rate requested by the market for a given issuer, allow investors to evaluate credit risk. Also, credit agencies periodically review their ratings, so issuers’ credit risk can be monitored.
However, other factors particular to the sector and organisation must also be taken into account for a full analysis. Agency ratings do not provide any information on the potentially profitable growth of a company, so do not constitute investment advice. They simply provide information in terms of the solvency of an issuer.
Available information
Information about the instruments listed on Euronext is available on our website and on the issuer’s website. The issuer also distributes the bond prospectus.
Different securities to suit different strategies
Thanks to the wide variety of issuers, yields, maturities and redemption options, bonds allow investors to develop a portfolio that suits their strategy and risk profile.
The more predictable, less risky nature of bonds makes them a good choice for investors who want to diversify their portfolios. Depending on the risk profile of their portfolio, any bonds they hold may exert a greater or lesser influence. Please bear in mind that, although the main characteristics of a bond issue are known in advance, this type of investment is not entirely without risk.