Investors should not buy corporate bonds just because of high interest rates

The Ministry of Finance on May 15 continued to give recommendations to individual investors in purchasing corporate bonds after its recommendation in October last year.
According to the ministry, in the first four months of this year, despite the impacts of the Covid-19 pandemic, the number of issued corporate bonds just slightly decreased compared to the same period last year, accounting for 98 percent. Of which, real estate companies accounted for 49.1 percent of the total issued corporate bonds with a higher average interest rate. Individual investors tended to increase buying corporate bonds.

The ministry recommended that enterprises that need to mobilize capital through bond issuance must calculate specifically the cash flow to build a feasible bond issuance plan that meets the capital demand for production and business and ensures the ability to repay due debts, consisting of principal and interest of corporate bonds.

As for investors, they should be aware that high-interest rates come with high risks. Therefore, only when having gotten information about the corporate bonds and assessed risks, then investors, especially individual investors, should buy private placement corporation bonds. Investors should not buy corporate bonds just because of high-interest rates without learning carefully about the characteristics of corporate bonds and possible risks. At the same time, investors also need to be cautious with buyback commitment of insurance and bond-distributing institutions, including commercial banks and securities companies, because it is possible that these financial institutions might fail to fulfill their buyback commitments because they must meet regulations on financial security or they cannot buy back due to financial difficulties.

By Ha My – Translated by Bao Nghi

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