What are the debt instruments to consider in 2024, and what are their benefits?

During times of financial market uncertainty, many people are looking for safer ways to protect their money, whether it’s highly volatile stocks, gold prices soaring and competing, or bank deposits with very low interest rates. In such situations, bonds may become a balanced option between good returns and protecting your investments.

This article will explain what bonds are, whether they are beneficial in 2024, and when compared to stock investments, which is more suitable.

Understanding Bonds Made Simple

To put it simply, bonds are like a clear loan agreement. When you buy a bond, you become a creditor to a company or government. The issuer will pay you regular interest, and at maturity, will return the principal amount in full.

What makes bonds attractive is that their interest returns are higher than bank deposits. However, this comes with a risk.

Potential Obstacles: Risks of Bonds

Risks to watch out for: 5 main points

1. The issuer may not repay
If the company issuing the bond faces financial problems, at maturity, it may not be able to pay back the principal in full or may not pay at all.

2. Interest rates may change
If you hold a bond and market interest rates increase, you might miss out on higher rates.

3. Difficult to sell early
Bonds do not have a broad trading market like stocks. If you want to sell early, there may be no buyers.

4. Inflation erodes returns
High inflation reduces the purchasing power of the interest received. If inflation exceeds the interest rate, real returns could be negative.

5. Future investment issues
When bonds mature, you need to find new investment opportunities, which may not be as good.

Hidden rights to know

Besides the risks above, some bonds have “special rights” hidden within:

• Early redemption rights (Callable): The issuer can call back the bond before maturity, ending your interest payments.
• Put options (Puttable): You can sell the bond back to the issuer before maturity at an agreed date.
• Convertibility (Convertible): You can convert bonds into common shares to potentially earn higher profits.

Market Types: Bonds Come in Many Forms

Classification by Issuer

Government bonds
Low risk because they are government-backed, but offer lower interest.

Public agency bonds
Lower risk than government bonds but still considered safe.

Corporate bonds
Higher risk but offer higher interest. Companies need to attract investors with attractive rates.

Classification by Payment Rights

Subordinated bonds
Pay after other creditors, riskier.

Unsubordinated bonds
Pay alongside ordinary creditors, safer.

Classification by Interest Payment Method

Regular interest payments
Every half-year, you receive interest, convenient for cash flow planning.

Accrued interest
No payments during holding period, but at maturity, you receive both principal and accumulated interest.

Zero-coupon bonds
Bought below face value; returns come from the difference between purchase price and redemption value.

Classification by Interest Rate Type

Fixed rate
Interest remains unchanged, safe and predictable.

Floating rate
Interest varies with market conditions, which can be advantageous or lead to missed opportunities.

How to Invest and Make Profits

Simple way to calculate returns

Suppose you buy a bond with a face value of 10,000 THB, an 8% annual interest rate, paid twice a year, for 4 years.

You will receive:

• Interest each time = 10,000 × 8% ÷ 2 = 400 THB
• Per year = 800 THB
• Total over 4 years = 3,200 THB
• At maturity = 13,200 THB (Principal + Interest)

Where to buy and sell bonds

Primary Market (Primary Market)
Buy directly from the company or government through financial institutions. You need to carefully study the terms.

Secondary Market (Secondary Market)
Trade with other investors via stock exchanges (BEX in Thailand). More liquidity, with T+2 settlement system.

Should You Invest in Bonds in 2024?

Benefits of current investment

Flexible durations
From 1 day to 20 years, choose what suits you.

Steady income
Continuous interest payments, no need to wait until year-end.

Higher returns than deposits
Banks offer low interest, but bonds provide more.

Acceptable risk level
Lower than stocks because bondholders have priority over shareholders for repayment.

Tradeable anytime
Secondary markets provide sufficient liquidity, so you don’t have to hold until maturity just because.

Bonds vs. Stocks: Which suits you?

Key differences to know

Choose According to Your Personality

If you are still: Focus on growth and accept uncertainty → Invest in stocks

If you are older: Want certainty and cannot tolerate volatility → Bonds are better

If you want balance: Seek both growth and stability → Mix of stocks + bonds (Good diversification)

Combining both options helps reduce volatility and maintain reasonable returns.

Summary

Bonds are not just for retirees or conservative investors. Nowadays, bonds are viewed as an essential tool for portfolio balance. Moreover, the ease of current investment access makes it simple for everyone to reach bonds.

The key is to clearly understand what bonds are, what risks they carry, and whether they align with your investment goals. Once you decide, bonds can become a valuable partner in building financial well-being.