What are bonds 1

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Possible goalsWhen could it make sense for me to invest in a bond?

Fluctuations in the price of bonds are generally less than those of stocks, for example.
The issuers of bonds pay the obligee the interest specified in the terms and conditions on a specific date. As a rule, you will get the money back at the end of the term.
Debt securities from economically sound companies and states are considered to be a relatively safe investment for long periods of time. If they are traded on the stock exchange, you can also sell them there at any time. In addition, it is then also possible to achieve a higher return through price gains.

Note: Whether or not an investment in bonds makes sense for you depends on your individual investment goals and your private investment strategy. Because here, too, the following applies: higher returns are only possible with higher risk. There are comparatively safe, but also very risky forms of debt security. The best protection, however, is to obtain comprehensive information and, if necessary, advice before making an investment decision!

RisksWhat are the dangers of investing in bonds?
  • Exchange rate risk: Price losses are also possible with bonds. Prices can fluctuate significantly depending on the type of bond. If you sell your bond before the end of the term, you have to accept the prices that are then current on the market. Liquidity risk: some debt securities, especially those of small and medium-sized companies, are not or barely liquid. So it can happen that they cannot be sold or not sold at short notice. In this case, you may have to wait until the bond matures in order to get your money back.
  • Interest rate risk: With the change in the general market interest rate, the price of a bond also changes. Falling interest rates mean that prices tend to rise. On the other hand, if the interest rate rises, the value of a bond can also fall.
  • Credit risk: The creditworthiness of an issuer can change during the term of a bond. It therefore plays a major role in the price development of a bond. For example, a company can get into financial difficulties or even become insolvent. The debtor may be temporarily or permanently unable to meet its interest and / or repayment obligations on time.
    For the creditor of a bond, this means that he can not only lose part or all of his capital, but also that the agreed interest payments are not made.
    Also keep in mind: unlike holders of ordinary shares, the investor of a bond as a creditor has no voting or shareholder rights. So you cannot have a say in important company decisions.
  • Currency risk: With bonds that are not issued in euros, you take a currency risk. This means that exchange rate fluctuations can affect your profit or loss. For bonds there is no deposit insurance. If the issuer defaults, you can lose your money.

Note: There are comparatively safe and very risky forms of debt security. Find out about the risks associated with debt securities before deciding on any particular investment.

UseHow can I benefit from investing in bonds?The obligee receives the interest payments for the bond, which are stipulated in the conditions. At the end of the term of a bond, the issuer usually pays back the capital invested to the creditor in full. If the investor decides to sell a bond before the end of the term, this could result in sales profits or sales losses for him. Unlike shareholders, for example, the creditor of a bond is given priority over the company's owners, but on an equal footing with other creditors if the company becomes insolvent.
Bonds from issuers with a high credit rating also promise a high level of security for the papers. Government bonds of the Federal Republic of Germany are an example. However, these are also offset by those bonds that have a high risk of default. Here one speaks of so-called junk bonds, junk bonds or junk bonds. Since their issuers are of poor quality and creditworthiness, the risk of default, i.e. the risk of losing the capital invested, is particularly high here. The principle applies that a higher return always goes hand in hand with a lower level of security.Own dutiesWhat are my obligations and costs when I buy a bond?

As an investor, you have to pay the purchase price of the bond as well as the costs incurred through the acquisition. These are, for example, agent fees and sales charges with which the providers cover their distribution costs.

All costs in connection with the purchase and / or sale of your bond must always be made available to you in advance (by means of a so-called ex-ante cost information) from your advisor / bank - regardless of whether you are using the bond without advice or Acquire / sell advice.

Check the ex-ante cost information thoroughly and compare different offers if necessary.

terminationCan I sell bonds at any time?

Bearer bonds are freely and informally transferable. However, this is more difficult with registered bonds made out to a specific person.

It is generally possible to sell listed bonds at current market prices on an exchange. However, if you sell before the expiry of the term, you have to accept the current price on the stock exchange - in a positive as well as a negative sense.

A bank or savings bank can, for example, execute the sales order on behalf of the investor on the stock exchange.

In the case of bonds that are not listed on a stock exchange, however, the sale can be difficult or even impossible.

Notification and publication obligations of the providerWhat information does the provider have to provide me with?

For bonds that are to be offered to the public or admitted to trading on a regulated market, a securities prospectus approved by BaFin or a securities information sheet ("WIB") approved by BaFin must be published. This is stipulated in Article 3 (1) of Regulation (EU) 2017/1129 for the prospectus and Section 4 (1) of the Securities Prospectus Act, WpPG for short, for the securities information sheet.

BaFin checks whether the prospectus is complete and understandable or whether the WIB is complete. In addition, she makes sure that the prospectus has no internal contradictions, so she checks its so-called coherence. However, BaFin neither monitors the seriousness of the issuer nor does it control the investment product. It also does not check the accuracy of the content of the prospectus. If a prospectus is incomplete or incorrect, investors can, however, subsequently assert claims under civil law prospectus liability.

In addition (or in the case of the WIB instead) an issuer of a bond that is to be classified as a packaged investment product within the meaning of the PRIIPs-VO must also publish a key information sheet for this product. This key information document must describe the basic characteristics and risks of the bond.

In the case of investment advice, the advisor of an investment services company is also obliged to provide the consumer with a basic information sheet if the bond is a so-called packaged investment product within the meaning of the PRIIPs-VO. If the bond is not a packaged investment product within the meaning of the PRIIPs Regulation, the investment advisor must provide you with a short and easy-to-understand information sheet when recommending it to buy. Both documents list the basic characteristics and risks of a product. In addition, the advisor must provide you with a so-called suitability statement. In the suitability declaration, the advisor must state why this bond suits you, i.e. why it is suitable for you. As a customer, you will also receive another document from your institute, the so-called ex-ante cost information (see illustration on “Your own obligations”). Make sure you insist on receiving these documents!

You can often find information on the Internet, for example on the website of the issuer itself under the heading “Investor Relations”.

Distribution channels and providersWhere can I buy debt securities?You can buy bonds from savings banks, banks and other financial distributors - with advice as described above or without such a consultation, i.e. without advice. Papers that are traded on exchanges can be bought and sold on an exchange during their term, especially through banks or savings banks.