Bonding with Bondsupermart: Bond Analysts 101

Introduction

You have probably heard the word ‘Analyst’ multiple times before and we are sure that it has ignited curiosity as to what exactly does it mean to become one? What are the pathways that can be taken to debut in the career? What does the journey entail? Thankfully, FLY journalists Emeline and Yean Quen had the opportunity to interview Teng Chong to give us insights into his journey of becoming a Fixed Income Analyst at iFAST Financial Singapore whilst tackling the complexities of the world’s largest securities market – the bond market!

Teng Chong’s journey of becoming a bond analyst took flight when he majored in Economics at the National University of Singapore (NUS), where he learned how monetary policy affects money supply in the economy and how it will help curb inflation. He also attributes the pursuit of this practice to his internship experience, which piqued his interest in this career path when he was doing credit research on European and Asian high yield bonds.

Bond Analysts & Bondsupermart

“Generally, bond analysts like any other research analyst will have a set coverage that they are in charge of and provide frequent updates on the issuers in terms of their financials and credits.”

Teng Chong kicks off the interview explaining the dynamic nature of his job; his day-to-day responsibilities are not fixed and it ranges from conducting research on the newest bond initial public offering (IPO) to analysing the best action plans for bondholders based on new announcements and more. He works hard to provide recommendations or ideas for bond investments to investors to help them capitalise on opportunities within the fixed income space. Additionally, he also comments on the movements of Fixed Income Indices and the general financial markets.

“Bondsupermart is an information gateway for anything bond-related for investors who are keen on investing in bonds to gather information and gain insights.”

Bondsupermart has a repository of bond data as it offers credit updates on various corporate issuers and new bond issues. The content aggregation portal also provides a variety of investment tools provided to its users to make investing easier, such as a portfolio builder and a bond calculator. Teng Chong personally finds the chart centre very useful as it allows users to compare the performance and yields of different bonds across different periods.

The Bond Market

“I think one of the most important things to think about before investing is to know your risk appetite and your time horizon for your investments. These will help you be grounded on your investment goals and expected returns for your investments.”

Despite being a relatively low-risk investment, the bond market can be intimidating to youths since it is a long-term investment and returns may fluctuate depending on interest rates. Teng Chong reassures readers that while this is true, holding bonds to maturity in the long term will help offset these fluctuations and allow decent and stable returns for bond investors. He encourages those interested to research the company beforehand to mitigate the risks.

“Knowing more about a particular company’s business model and financials will help in knowing if a particular company is worth investing in or not”

Teng Chong believes that one of the important factors when approaching the bond market is the relationship between interest rates and bonds. He stresses, “Bonds have an inverse relationship to interest rates. When interest rates rise, bond prices usually fall, and vice versa”. As such, he highlights the importance of keeping abreast of monetary news on central banks around the world, as key interest rates such as the Fed Funds Rate will have an impact on the prices and yields of bonds.

Bond Valuation

To shed light on the reason behind the bond market’s volatility, Teng Chong further explained that bonds are priced by calculating the bond’s cash flow and its face value when it matures, while the bond’s cash flow will be determined by the bond’s annual coupon rate and face value. After then, the cash flow would need to be discounted back to its present value. This discounting of the cash flow is what causes bond prices to fluctuate as the interest rate rises. In essence, the uncertainty in bond pricing is driven by its inverse relationship with interest rates.

Why Invest in Bond

In response to the perception of bonds as a relatively less exciting investment vehicle and its appeal, Teng Chong propounded that bonds would be right up the alley for investors who want to achieve important financial goals such as home renovation, without putting their capital at risk. This is because bonds provide investors with a much safer and stable return. Circling back to his earlier point, knowing one’s risk tolerance and investment horizon is vital as each individual invests differently and one should do so according to their risk appetite. Essentially, the key is to always be patient and stay grounded to your investment goal.

The Way Forward

Teng Chong is optimistic that bonds focusing on environmental, social and governance (ESG) will rise further in 2022. For example, Hyundai Capital Services and India Clean Energy issued several green bonds at the start of this year. The financial sector is also preparing to green the economy through ESG investments

Career Path

As you invest more time in knowing yourself through exploration and experimentation, your chances of choosing the right career path grow exponentially. The less information you have, the more challenging it is to choose the right career path. It’s like playing darts with a blindfold, you might get a bullseye on your first attempt, but chances are you will have to throw a few more before you even get on the board.

Teng Chong advised students not to restrict their possibilities when it comes to internships, and try their hand at everything as this allows them to make well-informed decisions down the line and find the career path that works best for them.

“One thing I wished I knew about bonds back in university would be how to provide a relative valuation for bonds by comparing them with a benchmark or their peers. I think this is important in bond investing as it compares bond yields and spreads between other issuers to compare against their yields.”

In addition, he encourages those interested in a similar career path as him to understand and analyse financial statements, as this constitutes an important part of becoming a bond analyst.

Closing Remark

“Do not be afraid to make mistakes and learn throughout the process. Also, do not be greedy in the markets, there will always be this ‘FOMO’ (Fear of Missing Out) feeling when you miss out on an opportunity and I think it is important to always do your due diligence on what you are investing.” In a nutshell, investing is like surfing in that you don’t try to catch every wave. Sets of good waves come in intervals, as do the opportunities in investment; it is pertinent to keep in mind that there will always be another wave and opportunity. Waves are wild and unpredictable, investments are no different; what is important is that before setting foot in the water, you understand those variables and know how to put them together to get the whole picture of the conditions. With that said, always perform pre-investment due diligence so that you can pick the waves worth riding.

For further information, Teng Chong recommends the resources linked below,