A bond is a long term debt security. It represents debt

because the investors ac-tually lend the face amount to the

bond is-suer. However, unlike loans, bonds can be traded in

the open market, ie. the investor need not hold it to

maturity or suffer a pe-nalty should he choose to sell the

bond.



　　A typical bond (plain vanilla) specifies:



　　－the amount of the loan. The face a-mount or par value

is the amount that the bond issuer has agreed to repay. A

typical face amount is S$1,000 for bonds issued by the

Singapore government;



　　－a fixed date when the principal is due. The date on

which the principal is required to be repaid is called the

maturity date;



　　－if the bond is secured by a collateral. Investors of

the Orchard 300 bond issued by Hallgaden Investment Pte Ltd

( a joint venture between Singapore Press Holdings and Lum

Chang) have the first legal mort-gage rights to The

Promenade, a commer-cial property at the heart of Orchard

Road.



　　-The contractual amount of interest which is paid out

either every six months or annually. The coupon rate is

deter-mined largely by market conditions at the time of the

bond's sale. Once determined, it is set contractually for

the life of the bonds. However, some bonds have interest

rates that fluctuate during the life of the bond, usually at

a spread over a reference rate. These are called variable

rate bonds or floating rate notes (FRN).



　　One example of a fixed rate bond is the Singapore

Government Bond 4.5% 03/00, the issuer is the Government of

Singapore, the interest payable is 4.5%. The SGB's coupon

is payable on a semi-annual basis, i.e. the Singapore

Government will pay the investor 2.25% of S$1,000 or $22.40

every six months. The government promises to repay the

principal in March 2000 to the investor. On the other hand,

the DBS Land 4/00 FRN pays a coupon of 35 basis points over

the 6 months Singapore dollar swap rate, where the reference

rate is fixed every six months and the principal is due on

April 2000.



　　Prior to the early 1980s, the bond market was comprised

mainly of 'plain vanilla' bonds with simple cashflow

structures, where coupon payments and maturity were fixed at

the outset. But since then, the market has progressed, and

many securities in the bond market have options embedded in

them. Examples include securities such as "callable bonds"

and "puttable bonds". The former offers the issuer the

option to redeem the bonds at an earlier date, and in this

case, the investor is usually paid a pre-mium over the par

value to compensate for the inconvenience. Suppose interest

rates have fallen substantially since the bond was issued,

then it would pay the issuer to redeem the bonds early and,

at the same time, sell a new issue with a lower cou