Today, Temasek 2.7% (TEKB) is paying half of their 2.7% coupons to bond holders. This means owning six thousand units of Temasek bonds will give you $81.20. This post will be sharing possible reasons why investors buy bonds despite its yields.

Quick understanding about bonds

To raise funds, companies might issue bonds with specified coupon rates. Temasek bonds pays half of 2.7% every 6 months from the date of bonds issue. A bond usually last from 5 to 10 years and at the end of the term, bond holders will be refunded their capital.

Sample of Bond returns

2.7% per annum ,	Year 1	Year 2	Year 3	Year 4	Year 5
Bonds issued ($1 each)	6000	6000	6000	6000	6000
Coupon payment ($)	162	162	162	162	162
Total Yield ($)	162	324	486	648	810

Total returns will be $810, which is 13.5% in 5 years.

Logic of buying bonds, despite lower yields

Almost risk free

Bonds are sometimes backed by assets and this reduces the risk involved. In an event of bankruptcy, companies will liquidate the specified assets to refund bond holders, before settling other debts or payments.

Regular income

Bonds are regular income generators without the worry of much capital fluctuations. In fact, most bonds appreciate in value after listing on the exchange. In short, some bonds are low-risk and income generating. This is especially suitable to people who has capital but are risk avoidant.

Bond “Sponsorship”

Personally, bonds sponsors a fraction of our expenses. This perspective is rare but it is actually very real. Bond payments can seriously subsidize our expenses depending on your rate of spending. That is a benefit for anyone on any day, akin to receiving pocket money from the bond issuer.

Higher yields and liquidity

I believe that the heading is self-explanatory. To add, retail bonds can be traded in the market, which means that you are able to sell them away if you are in need of liquidity.

Closing Thoughts

As an investor, it is important to think differently from others around us. There will be many of us who will shy away from the low returns of bonds and insist that they can live without it. Though that might be true and the returns are somewhat miniscule, but usually bonds will pay much higher than fixed deposit, which is also sold as a risk free investment option. That said, consider your options and invest wisely. I hope this post will help you guys in terms of portfolio diversification and have a new perspective on bonds.