One Smart tool to mitigate your Bond Investment Risks

One Smart tool to mitigate your Bond Investment Risks

When it comes to finding a strategy that helps mitigate the risk on your fixed income securities, there are many challenges and variables to consider, and with today’s technology, you would think there is a solution out there that might solve this problem already! Well, while the markets and the economy will continue their volatility through the ages to come, and there is more than one solution you would need for your complex strategy, there is now at least a FinTech Company that is bringing you 1 new solution that will help mitigate this problem.  PFITR’s Bond Price Validation tool is the new solution, that helps investors identify, measure and minimize the risks on their fixed income investments.

Since in the bond market (also known as debt market), there is a lack of standardization and transparency which makes it difficult for individual investors to trade bonds, in comparison to stocks, which are regulated, bought and sold on stock exchanges, most bonds are traded over the counter; i.e. two parties will negotiate the price directly. It is also even harder for individual investors to trade profitably as the market is opaque and the risks associated with it are hard to identify. So let us take a break and analyze some of the common risks associated with the bond market.

  1. 1. Interest rate risk: This is the type of risk where a change in interest rates will negatively affect the value of your investment, mainly because of a fundamental principal associated with the bond investments which is that market interest rates and bond prices generally move in opposite directions i.e. when market interest rates rise, prices of fixed-rate bonds fall and vice versa. Also, the more the maturity tenure of the bond is, the more it may experience interest rate risk.
  2. 2. Reinvestment riskThis is the most common risk in bonds, this type of risk occurs when an investor cannot reinvest cash flow from another security at the same interest rate.
  3. 3. Event risk: This risk where the ability of an issuer to make interest payments and the principal amount is declined because of unpredictable events.
  4. 4. Call risk: The risk that the bond will be called by its issuer before maturity by returning the investors principal and stopping interest payments.
  5. 5. Liquidity risk: Risk of few buyers and sellers to sell out bonds (excluding government and corporate bonds).
  6. 6. Default risk (or) Credit risk: As the name suggests, the risk that the issuer of the bonds will not be able to repay the interest or principal payments to its bondholders.
  7. 7. Rating downgrades: The risk that the issuer of the bond receives a rating downgrade which will lead to fall in the market price of the bond.
  8. 8. Inflation risk (or) Purchasing power risk: Risk which includes inflation into account i.e. if inflation is higher, then the real rate of return will be lower. Inflation risk is the most harmful one as we cannot really see it.
  9. 9. Currency risk (or) Exchange rate risk: The risk associated with the depreciation of the value of currency when an investor holds a bond denominated in other foreign currency. This risk can be reduced by hedging, which offsets currency fluctuations.
  10. 10. Hedge risk: The risk that the bond hedge may not decrease your exposure to interest rate changes by moving opposite to the bond prices i.e. when bond prices decline, the value of your hedge should increase by offsetting the loss in your bond portfolio.

Many investors and analysts spend countless hours trying to figure out a way to minimize risks, and end up with no luck, due to the lack of transparent information, the right guidance and right technology.

But this is about to change.

With the tool that PFITR developed, based on the latest technology and up-to-date bond market information, the investors minimize the risks associated with the bonds, by identifying, measuring and mitigating the risks.

The Bond Price validation tool or the “BPV Tool, helps institutional investors find the most appropriate securities to purchase according to their portfolio policy. It helps them reduce risk by avoiding bad timing, verifying that the investment purchases are made when market prices are low, gives them access to bond ratings, historical pricing and other analytics that equip them with information to make better investment decisions. It also helps institutional investors as a negotiating tool, which allows them to save money by getting the best bond market prices when having access to the real market prices.

In other words, PFITR’s Bond Price Validation tool provides all the required information which an investor needs to look at, before purchasing bonds, and empowers the user with real market data to identify, measure and qualify risk. The biggest benefit of working with PFITR’s BPV tool, is that you will be more confident in your investment decisions, while also keep track of your purchase history to easily report it back; without the hassle of Excel spreadsheets and unknown information that auditors and regulators will be wondering about. Using this solution will also assure you personalized guidance from our team, to make sure you stay up to date with our market trends videos, articles and other informative updates just for you.

So, what are you waiting for?

Try out PFITR’s BPV Tool at https://www.pfitr.com/bpv-tool/

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