The Union of Investment Companies (UIC), through its training arm—the Investment Studies Center (ISC), organized a program titled "Fixed Income Analytics - Valuation & Characteristics", which was presented by the lecturer/ Alaa Ghanem - CEO of Advisory and Business Company during the period 10th – 12th November 2024, at UIC premises.
UIC stated that in the world of financial markets, fixed-income securities remain important investment tools that receive wide attention from investors around the world, as these tools represent a suitable option for people seeking to obtain a fixed and regular income while reducing the level of risk, but to understand how to invest in these papers and get the most out of them, it is necessary to know the distinctive characteristics of these tools and the different evaluation methods that depend on them.
From this standpoint, ISC organized this training program with the aim of enabling workers in the investment and banking sectors to hone their skills with the latest methods and practices that help them perform their tasks efficiently and effectively.
The first section, which deals with the basic elements of fixed-income securities, provided a detailed explanation of the terms of bonds, which represent the legal agreements that define the rights and duties of the parties concerned, such as the maturity date, interest rate, and interest payment dates. Through these terms, the investor can determine the nature of the bonds and their compatibility with his investment strategy. The five main characteristics that investors should know when dealing with bonds were also addressed, namely: the nominal value of the bond, the interest rate (coupon), maturity date, payment terms, in addition to the legal provisions associated with the bond, such as early payment terms.
In addition, the topic of covenants was addressed, which constitute legal obligations on the issuer, such as financial and operational covenants that aim to protect the rights of investors and ensure stable returns.
The second axis then addressed the types of bonds that differ in terms of geographical location, currency and issuing entity. The program provided an explanation of local bonds issued by governments or companies in local markets using the local currency, which are bonds that have minimal financial risks associated with the currency or local economic stability. Foreign bonds issued by external entities and targeting local investors were also discussed, which often carry additional risks due to market fluctuations and exchange rates.
The program also reviewed Eurobonds, which are bonds issued in foreign currencies and target diverse international markets.
Global bonds issued in multiple currencies and targeting investors from all over the world were also discussed, providing greater flexibility for investors seeking to diversify their investment portfolio on a global level.
In the third axis, the program discussed the structure of bonds in detail, showing that not all bonds come in the same form or financial structure. Some common patterns in bond structuring were explained, such as bullet bonds, in which the full amount due is paid on the maturity date. This type was compared to amortizing bonds, where the bonds are paid gradually in periodic installments during the bond term. Sinking Fund Provisions bonds were also discussed, which contain a mechanism for reducing debt by allocating funds to pay off the bonds before the final maturity date. On the other hand, floating rate notes (FRN) were discussed, whose returns are linked to changes in interest rates in the market, making them attractive to investors who prefer to reduce the risk of price fluctuations. The axis also discussed bonds that offer a step-up coupon and convertible bonds, which have special features that allow investors to convert bonds into shares or benefit from increases in interest rates. Over time.
In addition, the program addressed guarantees and credit enhancement in the fourth axis, where the importance of guarantees that may be provided with bonds to enhance confidence between the issuer and the investor was explained, and the focus was on the financial capacity of the issuer, which includes the ability of the issuing entity to meet its financial obligations, and ensuring legal covenants that impose restrictions on the issuer to ensure that the company does not incur more debts or sell important assets that may affect its ability to meet its obligations, and the real guarantees were also explained, which may include physical or financial assets provided to investors as a guarantee against the issuer’s default on its debts, as these guarantees are of great importance because they provide investors with an additional degree of security in the event of financial problems for the issuer.
In the fifth axis, valuation was addressed as a fundamental element in making investment decisions in fixed-income securities, where it was explained how to calculate the present value of bonds, by discounting future cash flows using an appropriate discount rate, and the relationship between the value of the bond and its maturity period was highlighted, as the duration of the bond affects its present value, especially in light of fluctuations in interest rates in the market. The subject of the yield curve was also addressed as a crucial tool for analyzing the returns associated with bonds across different maturity periods, and how this curve can help investors make informed decisions about their investments in bonds.
In the sixth and final axis, the yield curve and market analysis were addressed, where the importance of the yield curve in determining the potential returns on bonds over different time periods was explained, which represents an important indicator of economic expectations and risks associated with changes in interest rates, as by analyzing this curve, investors can make strategic decisions about the types of bonds they choose based on future market expectations.
At the end of the training program, participants praised the unique experience provided by the program, as it gave them the opportunity to explore strategic insights into the valuation and characteristics associated with fixed-income securities, and to enhance a deeper understanding of the structure of bonds, their different types, as well as the advanced tools used to evaluate these financial instruments. It also allowed them to view the various guarantees provided by these securities, which contributes to enabling them to make informed investment decisions based on a comprehensive and accurate analysis of the market.