Investing in Bonds with Hugo

Digitally trade 5,000+ government and corporate bonds in Europe, US, Asia, Middle East and Latin America.

  • Pricing from 0.2% on trade amount
  • Free trading support from Hugo

You know what you get

With a bond you are lending money in exchange for interest. Bonds are definitely interesting in a defensive portfolio or as part of your investment strategy.

But do the bonds in your portfolio give you the best effective yield? Hugo helps you look for the best bonds to suit your investment strategy.

Why trade bonds with Hugo?

Ultra-competitive pricing

Standard commission rates start at 0.20%, and drop as low as 0.05% as you trade more.

Trade bonds digitally

Get direct access to tier 1 liquidity and receive the best spreads with minimal mark-up.

Award-winning platform

Trade bonds from the same platform as other assets and access powerful analysis tools.

Full support

The Hugo team consists of real investors with +25 years of experience. You can count on their support.

Benefit from fully digital bond execution

Low spreads

Orders are routed straight to an optimised digital dealer auction, where the top end of 50+ liquidity providers compete for your order and return the best possible price for an instant trade.

Low commissions

With direct electronic access to liquidity providers, we eliminate manual processes across the value chain of traditional bond trading – so that you can benefit from significantly lower commissions.

Tier 1 liquidity

We source liquidity from our network of more than 50+ Tier-1 liquidity providers in the global OTC market, covering the US, EU and emerging markets including LATAM, APAC and MENA.

Risk warning bonds

Danish banks are required to categorise investment products offered to retail clients depending on the product’s complexity and risk as: green, yellow or red. For further information click here. For most bonds, in particular corporate bonds, bid and offer prices are not public available and transparent, as the majority of trading takes place outside regulated marketplaces. Bonds are traded OTC with Saxo Bank as counterpart, and OTC trading conditions apply.

Spanish risk category

In Spain investment products offered to retail clients are categorised using the levels 1 to 6, depending on the product’s complexity and risk. For further information click here. A bond is categorised as level 4-5 from 6.

Safe Trading account

Saxo Bank is a member of the Danish Guarantee Fund. In the event that a Danish bank should suspend its payments or go into bankruptcy, client deposits are guaranteed by the Fund with up to EUR 100,000 for cash deposits. Cash deposits are calculated as the net free deposit after deduction of any debt to the bank.

Trade bonds on our award-winning trading platform

SaxoTraderGO is our powerful yet easy-to-use platform. Trade from PC, Mac, tablet or smartphone.

Powerful bond trading tools
Benefit from extensive charting with 50+ technical indicators, integrated Trade Signals, and innovative risk-management tools.

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What are bonds?

With a bond you are lending money to a government or company. In return, you will receive interest in the form of a coupon payment. A bond is therefore a debt certificate and generally regarded as the defensive part of an investment portfolio.

Nominal value, coupon rate and coupon date

The nominal value of a bond is the amount that a government or company aims to collect from the loan. This amount is divided into pieces known as coupons. You can buy them on the stock market, frequently in units of EUR 1000 or multiples of them. If you have purchased a coupon, you will receive interest upon it. This is often at a fixed rate, but it can also be variable. The interest is always paid on the coupon date. Bonds have a market price that is expressed as a percentage of the nominal value. If the rate is exactly equal to the nominal value, it is 100% or on par. The bond is considered below par value if the stock price is below 100%, and above par if it exceeds 100%.

In addition to the usual corporate and government bonds, there are also convertible bonds, reverse convertibles, zero-coupon bonds and perpetual bonds. These are bonds that may involve a higher risk. We advise you not to invest in these instruments if you do not understand the risks.

Calculation with Bonds

We can look at a corporate bond that issues a coupon rate of 6% annually on May 1 with an expiration date of May 1, 2022. This bond currently holds a stock price of 102%. You want to purchase a EUR 1000 coupon from this bond. What do you pay for this purchase, how much interest is added to your account annually and what is your return?

1000 nominal x 102% = 1020. You therefore pay EUR 1020 to purchase one coupon of 1000 nominal. The coupon rate will be distributed to you on the nominal amount held by you. You receive 1000 x 6% annually = 60 euro interest.

Coupon yield takes into account the purchase price of the bond and is 60/1020 = 5.88%. If you also take into account the remaining term of the bond, this is the effective return. It will be slightly lower than the coupon return as the bond will be repaid at EUR 1000 by 2022. Because you bought the bond for EUR 1020, this means a loss of EUR 20 that you should deduct from the interest you receive annually during the term.

Market interest and creditworthiness

When a government or enterprise issues a bond, the interest rate will depend on a range of factors including market interest rates, the maturity of the bond and perception of the market for credit or government credit. The less creditworthy the issuer, the higher the interest rate. The longer the term of the loan, the higher the interest rate.

Once the bond is traded on the stock exchange, market interest rates and creditworthiness can also significantly affect price formation. For example, the rate of a bond may fluctuate considerably due to changes in market interest rates. If the market interest rate rises, the price of the bond decreases and vice versa. Also, the bond rate may fluctuate based on a changed estimate of the issuer’s creditworthiness. During the Euro crisis, government bond yields fell in countries such as Greece, Spain and Italy. Investors feared that these countries were unable to meet their obligations. 

Why invest in Bonds?

Bonds are suitable for investors who are satisfied with the previously known effective return, provided they are prepared to hold the bond until the end of its maturity. It is especially interesting for those who are looking for higher returns on their savings but do not feel confident to take the step into stock market investing. Please note: with bonds there is an element of risk, just as with any other form of investment. The issuer (company or government) may be in trouble or even go bankrupt. In this case, your investment will be less valuable, or even lose its entire value.

Risk

The information on investment products is for general information and is not intended as advice. In spite of the fact that Hugo Broker takes care of the compilation and maintenance of these pages using sources deemed reliable, Hugo Broker cannot guarantee the accuracy, completeness and actuality of the information provided. If you use the information provided without verification or advice, you do so at your own account and risk. We advise you to always check any transactions and not to invest in financial instruments that you do not understand the risks. No rights can be derived from the information on these pages. 

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