COVER

BONDS
BOND INSTRUCTIONS ANTI-RISK
When investing in bonds just remember some simple rules that help avoid surprise
s. Here is the map of risk warnings and ten key. With portfolios suitable to pre
sent a series of corporate securities and Recommended Focus
The choice Never choose a bond without knowing the characteristics and without c
hecking if it is the right choice with respect to our risk tolerance and our inv
estment objectives.
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BONDS
PRIMARY SECONDARY RISKS RISKS
RATE RISK
LIQUIDITY RISK
■ Angelo Drusiani
ISSUER RISK
EXCHANGE RISK
The rules The rules to follow when you make a bond investment are few and simple
. The quote clearly in these pages.
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Argentina, end 2002: Cirio End End 2001: More evidence of many situations societ
à2003: Parmalat. at risk or uncertain, with frequent downgrading of which seemed
very solid. What a shock for people of Bots, which, after years of double-digit
returns offered by the Italian Treasury has experimented with its own assets th
e bitter reality of financial markets. Without returns, but also risks. Combinat
ion which will inevitably refer to the unborn law on savings, but which can neve
r evade the investor, even if the legislation in gestation will launch some impo
rtant lifesaver. The trouble is that the transition from Bot obligations, motiva
ted by the steady and significant decline in yields
Investing 018 ■ June 2005
The risks also bond investment involves risk. Are shown in the diagram next to t
he left. The risk rate and liquidity risk should be considered when you have to
sell bonds or bonds before maturity, because the price may fall (rates) or becau
se it can be difficult to find a buyer (cash).
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Getting around in a market become more difficult
market occurred in the absence of sufficient information. The trouble is that, e
ven today, many investors choose bond instruments ignoring the characteristics a
nd avoiding questioning whether they really represent the right choice. Simply b
ecause recommended by a friend or an intermediary, or simply because they fascin
ated by the name of the debtor. But invest their capital is not easy, because th
e rules be followed, regardless of the content of the law on savings, although n
ot complicated, demand respect and attention. To avoid being unexpectedly in a b
ad way. Ten directions, ten moments to reflect on, before deciding that financia
l instrument to choose. Here are some tips that may seem obvious, but very few o
f which refers to the act of transferring their money to a bond or a bond.
REMEMBER THAT WORKED MONEY
1 ■
To know
Definition box with which means the investor who prefers to purchase and maintai
n for a prolonged period of equities and bonds
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Buy a corporate bond or government bond means lending money to a debtor, even if
this is done through an intermediary, usually a bank. Is not it that the money
is intended, but the issuer of the securities. The bank acts as the collector, c
ollects the money to transfer them to others, in this case the person who propos
ed the bond market. Bonds or bonds are simply a refinement of a contract between
debtor and creditor, where the first s'obbliga to pay interest and repay the se
cond, ultimately, the amount initially received.
LOOK AT YOUR RATES AND DEBTORS
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Corporate term for private companies. For corporate bonds or corporate bonds, we
refer to bonds issued by private companies that are indistinguishable from thos
e issued by sovereign States governmental or supranational bodies.
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Business is lending money at risk, whether it is done professionally, whether it
is done for other reasons, to friends or relatives. Not always, the sum paid is
returned. So it is for bonds: in most cases, the issuer pays regular interest a
nd repay the agreed loan capital obtained, but the case of insolvency are not un
common, especially during economic slowdown or recession. The purchase of a bond
or a government bond exhibits two types of risk: rates are the primary risk and
issuer risk, because stock prices depend on expectations about interest rates a
nd the prospects of the debtor,€and the only and the other instruments come with
the bond for the entire period of their lives. Are secondary liquidity risk and
currency risk, because they are light or if you purchase a broadcast or placed
in small amounts denominated in currencies other than euro. Secondary risks are
defined, because it is not situations that characterize all loans on
June 2005 ■ Investing 019
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BONDS
market, but only part. It 'obvious that if you opt for emissions illiquid foreig
n exchange, subscribers s'assume all risks, rates, issuer, liquidity, foreign cu
rrency .. The risks, in finance, resulting in changes of market prices: the stro
ngest effects they create currency risks, because the movements of the exchange
ratios are larger. The quote between euro and U.S. dollar has suffered a swing o
f 21.55% in 2003, 8, 31% in 2004, about 5% in the first months of this year. And
these are two coins considered strong!
To know
Trading Activities for the sale of financial securities. Virtually all transacti
ons involving the purchase or sale of a stock, bond, or financial in general. Tr
ading online is instead the operation is performed by using technological platfo
rms (eg connecting to Internet services).
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MORE MORE EQUAL PERFORMANCE RISK
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In view of the issue of risk is essential to assess what the personal risk toler
ance, as it is able to withstand losses virtual, related to the comparison betwe
en the purchase price and debt market prices, or real losses, monetized when the
bond is sold on the market. High risk tolerance leads the investor to purchase
emissions with long duration or low ■ S & P MOODY'S reliability of the issuer, b
ecause they offer higher returns. Small risk appetite led him to buy securities
with a maturity ber ■ AAA AAA ve or high degree of reliability dell'emit ■ AA +
AA1 authority. The relationship between risk and return ■ AA AA2 chin, which dic
tates the choice of ■ AA-AA3 investors, is straightforward: high-risk heart ■ A
+ A1 meets another performance, and vice versa ■ At A2.
The Rating Scale
QUALITY ISSUER
Investment Grade Top
ISSUER WITH MAXIMUM DEGREE OF RELIABILITY ISSUER WITH HIGH DEGREE OF RELIABILITY
ISSUER WITH GOOD OVERALL ABILITY to meet the commitments
■ A-
A3 ISSUER WITH ADEQUATE capacity to fulfill its commitments DEBTORS
■ ■ ■ ■ ■ ■ ■ ■ ■ ■
4 ■
The bond which will pay the investor will also chosen on the basis of personal n
eeds: it is important to assume the theoretical duration of the investment, the
desired level of coupon payment, the hypothetical possibility of surrender befor
e the expiry of the title, if you opt for one other form of investment, such as
buying a property.
VALUED WELL YOUR NEEDS
Lower Investment Grade
■ ■ Baa1 BBB + BBB BBB-Baa3 BAA2 ■ ■ ■ BB BB + BA1 BA2 BA3 ■ ■ BB-B + ■ ■ ■ ■ ■
■ ■
BCCC B + B1 B2 B3 C CCCCC CCC CAA CA C ISSUER WITH HIGH LIKELIHOOD OF FAILURE TO
REFUND OF BONDS OR NO INTEREST IS PAID ISSUER COUPON bankrupt
Not Investment Grade
Issuer whose ability to fulfill its commitments and ■ LESS OF INVESTMENT GRADE ■
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Not Investment Grade Lower
Issuer whose capacity to fulfill its commitments and lower court
LAND SECURITIES to maturity?
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Investing 020 ■ June 2005
Where is tempted dall'immettere portfolio emissions in the long term
■ ■ ■ ■ ■ ■ ■ ■
The basic rules of investment bond
should decide how much of the portfolio will be static, the typical figure of dr
awers, just buy the securities, cash and collect the coupons, maturity, face val
ue myself. Why? Because if you buy ten-year issue, the price can vary between fi
ve and seven points, depending on the value of the coupon in the face of changin
g a point of interest rates. For the part intended to be kept in the portfolio u
ntil maturity, this issue has no particular effect, because, ultimately, the vot
es will still be repaid at par, or other values, regardless of market prices mar
ked during the life of ' obligation.
Understand letters and numbers
IN THE TABLE: THE LADDER OF RATING, OR CO N WHICH THE EVALUATION OF THE SPECIALI
ZED AGENCIES measure the reliability of issuer BONDS, AND A SERIES OF BONDS RECO
MMENDED. THE FOLLOWING: THE EXPLANATORY NOTES
■ a) 06/21/2013 possibility 'of reimbursement to 100 or possibility' that the co
upon rate is 3 months longer eurobor '3.45 ■ b) Coupon increases or decreases of
0.25, if credit ratings fall below A ■ c) coupon increases or decreases of 0.25
, if rating falls below BBB + ■ d) Coupon increases or decreases of 0.25, if rat
ing is reduced by Moody's and S & P ■ e) Possible restrictions on sale in Italy
■ f) Possible restrictions on Sales in Italy and minimum amount negotiable '■ g
50 thousand euro) Minimum amount negotiable' 50 thousand euros
GOVERNMENT & CORPORATE
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Depending on the risk appetite of the share will become static, the reddività yo
u would like to achieve, emphasis will be on corporate bonds, medium to high ris
k, or those governmental bonds, low to medium risk.
Emissions recommended by degree of risk
ISIN CODE SECURITIES RATING S & P Coupon Maturity Gross Yield PRICE COMMENTS
FR0000492282 IT0003652077 XS0159387579 XS0114443772 XS0167456267 XS0103349774 XS
0166965797 XS0114448144 XS0182313527 XS0130182784 XS0139186356 XS0201333761 XS01
27693934 XS0217593176 XS0200848041 FR0000487647
GENERAL ELECTRIC BANK AUSTRIA ENI BTP CARREFOUR VODAFONE MUNICH RE EDISON LOTTOM
ATICA ERICSSON AT & T Alcatel REPUBLIC OF TURKEY RENO DE MEDICI PIAGGIO GROHE HO
LDING
4,125 5,875 4,625 3 4.5 5.75 6.75 6,375 4.8 7,375 7.75 8.5 5.5 6 10 8,575
1-18-06 8-02-2010 4-30-13 4-15-09 3-18-09 10-27-06 6-21-23 7-20-07 12-22-08 5-31
-06 11-21-06 12-07-2006 9-21-09 5-04-2006 4-30-12 10-01-2014
AAA AAA AA + AA + A + ABBB bbbbb BBB + BBB BB B + B-
102.80 114.31 107.92 101.28 105.97 104.87 116.22 109.51 105.15 105.16 106.53 108
.86 103.73 97.75 102.50 98.50
2.33 2.89 3.47 2.67 2.84 2.33 4.34 2.84 3.26 2.42 3.30 2.68 4.53 8.47 9.44 8.86
a) b) c) c) d)
e) f) g)
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BONDS
Portfolio average aggressive
variable 5% over 5 years 25%
DIVERSIFIED always
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up to 2 years 35%
Determined the weight of the two sectors, corporate and governmental, should be
further split the issuer risk: the best strategy is to diversify your portfolio
among several titles, both governmental and corporate. In this sense, the experi
ence of professional managers is illuminating, because their securities portfoli
os consist of a particularly high number of securities, whose weight often exten
ds to a maximum of 5 7.5% of the portfolio itself, for each issue.
5% cash
Do not forget your investments
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2 to 50 years 30%
Liquidity LEGEND: BOT repo
term accounts
Durations up to 2 YEARS FROM 2 TO 5 YEARS OVER 5 YEARS OF LIQUIDITY VARIABLES
WEIGHT 35% 30% 25% 5% 5%
If you opt to maintain stable and static on your investment, if you have drawers
, it is advisable to follow closely the evolution of market interest rates becau
se the total value of assets is very sensitive, of course, prices tools that com
pose it.
Over 5 years: mostly titles
ending 10 years
LET THE TRADING FOR SPECIALISTS ...
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Moderate risk portfolio
liquidity variables 5% 10% 10% over 5 years to 2 years 45%
Generally, emissions more easily liquidated, such as government bonds with a ten
year period, suitable to be used for trading, figure opposite to that of the tr
ay, which is bought and sold several times the same instrument. Investor's objec
tive is to buy at lower prices and sell at higher prices: they are activities to
specialists. The results of which are uncertain and unpredictable, even for mar
ket professionals. Better, then, would not venture into a type of asset manageme
nt, particularly complex and difficult.
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2 to 50 years 30%
Durations up to 2 YEARS FROM 2 TO 5 YEARS OVER 5 YEARS OF LIQUIDITY VARIABLES
Investing 022 ■ June 2005
WEIGHT 35% 30% 25% 5% 5%
The choice of instruments issued by borrowers from emerging markets or high degr
ee of reliability, but in currency other than euro should be paid to those who h
ave good experience of financial markets. It 'easy to be attracted by very high
yields, as proposed, for example, securities denominated in Hungarian forint, Po
lish zloty, or by South African rand, but the trend of the exchange ratio may no
t only reduce the performance proposed, but even reset or make it negative. Choo
se foreign currency bonds is therefore a prerogative of those who have high risk
tolerance. Ultimately, if the market rates fluctuate between 2 and 4% of GDP, a
nd is offered a bond paying 10%, the risk is around the corner. ■ Be careful not
 to be surprised!
... AND THE STRANGE CURRENCIES Reckoning