Taipei Exchange

A bond is a tradable debt security, by which the issuer raise funds and thus owes the holders a debt and is obliged to repay the principal at a later date or to pay interests (the coupons) at fixed intervals depending on the terms of the bond.

Bonds have the following characteristics:

1. An financial instrument that represents a loan made by an investor to a borrower, with tradable secondary market and prices.
2. Issuer: Could be government, financial institutions, corporations, foreign government/institutions, international institutions or corporations . Therefore, there are various type of bonds based on different issuers.
3. Fixed-income security: holder’s incomes (interests) are not affected by the operation and financial status of issuers.
4. Specific repay period: most of the time, issuers are obligated to repay the principal amount at maturity.( Except for special issue conditions)
5. Can be transferred freely, or as collateral and/or as a guarantee for business purpose.
6. Can registered as lost to avoid further payment of Interest (except bearer bonds issued before September, 1995).

Our bond market includes:

1. Issuing Market (Primary market): The period starts from issuer's planning stage to passes a series of procedures and finally until bond is handed to subscribers.
2. Trading Market (Secondary Market): The market for investors to trade bonds or for bondholders to sell bonds for cash. Recently, bond trading mainly deals in the TPEx and OTC market, only a few bond trading prosecutes on the centralized market. In order to make bond trading more smoothly and safely, TPEx sets up all kinds of regulations to standardize the market.

The types of bonds available on Taiwan’s bond market include mainly:

1. Government bond: Government bond is issued by different government agencies. They are most liquid and carry lowest credit risk.
2. Financial debenture: Financial debenture is issued by a savings bank, a bank specializing in extending medium-term and long-term loans, or a commercial bank. The issue size of financial debentures is usually low and they are mostly subscribed and held by other banks and financial institutions for a long time, and rarely available to the open market.
3. Corporate bond: Corporate bond is a debt instrument issued by a state-run or private organization to raise funds for improving financial structure or business development. The creditworthiness of corporate bonds varies significantly depending on the credit quality of the issuer.
4. Convertible bond: Convertible bond is a hybrid of bond and stock. The holder can convert their bond holding into the common stock of the issuing company based on the pre-agreed terms and conditions.
5. Corporate Bond with warrant: Investors of corporate bond with warrant are entitled to buy the stock of the company that issues the bond at a fixed price, and may continue to hold or trade the bond after the warrant has expired.
6. NTD-denominated foreign bond: NTD-denominated foreign bonds include foreign corporate bonds, foreign convertible bonds and foreign bonds with warrant issued by an international organization, foreign government or foreign state-owned or private enterprise with approval of the competent authorities.
7. International bond: International bond is a foreign-currency denominated bond offered and issued by a domestic or foreign issuer in Taiwan. RMB-denominated international bonds are also called “Formosa bond.”
8. Green Bond：Green Bond indicates the financing tool which all of the funds raised by the issuer are to be used for expenditures on or making loans to green investment projects, including climate change, environmental protection, renewable energy and carbon reduction…etc.  Issuers shall apply to the TPEx for Green Bond Qualification in accordance with the Taipei Exchange Operational Directions for Sustainable Bonds before listing its bonds as Green Bond on the TPEx.
9. Sustainability Bond: Sustainability Bonds are bonds where proceeds are to be used for expenditures on or making loans to a combination of Green and Social Projects. Issuers shall apply to the TPEx for Sustainability Bond Qualification in accordance with the Taipei Exchange Operational Directions for Sustainable Bonds before listing its bonds as Sustainability Bond on the TPEx.
10. Social Bonds: Social Bonds are bonds where the proceeds are to be used for expenditures on or making loans to Social Projects. Issuers shall apply to the TPEx for Social Bond Qualification in accordance with the Taipei Exchange Operational Directions for Sustainable Bonds before listing its bonds as Social Bond on the TPEx.
11. Sustainability-Linked Bonds (SLBs): SLBs are bonds for which the principal and interest payment terms are linked to the issuer's sustainability performance targets (SPTs). Issuers shall apply to the TPEx for Sustainability-Linked Bond Qualification in accordance with the Taipei Exchange Operational Directions for Sustainable Bonds before listing its bonds as Sustainability-Linked Bond on the TPEx.

1. Stable rate of return:
   Usually bond has fixed or floating coupon rate and its principal and interest payments are paid back by the issuers in a certain period. Outright purchase investors could obtain fixed income and the return is higher than bank deposit rate. When interest rate falls, the investors could even enjoy capital gain. Convertible bondholders could even share the profit of booming of common stock price by converting their bonds to common shares.
2. Lower risk:
   The credit risks of government bonds and financial bonds are relatively low, and corporate bonds issued by corporations with high credit rating grades are also safer than other securities. 
3. Higher liquidity:
   Government bonds can be traded on the market anytime and are easy to be liquidized. Also they could be treated as deposit or court guarantee. Some bondholders also obtain capital from bond dealers by trading RS/RP and this deal will not affect their interest payments. However this high liquidity feature is not for all financial bonds and corporate bonds and it depends on issuers" credit rating and operating revenue.
4. Low capital mobilization cost:
   Government bonds could always be collateralized, or used to raise capital by RP/RS trading with bond dealers. The borrowing rate usually is lower than the bank and the procedure is easier.

1. Interest rate risk: Changes in market interest rates will affect the prices and yields of bonds. The greater the possibility of interest rate change, the greater the interest rate risk. Factors that influence interest rate movement include monetary policy of the central bank, inflation, economy, international financial situations, etc.
2. Credit risk: If the bond issuer has poor credit quality, it is possible the issuer will not be able to pay principal or interest on the bond.
3. Liquidity risk: It refers to the difficulty of investors trying to sell the bond they hold at the current market price. The smaller the spread between ask and bid prices of a bond, the lower the liquidity risk for the bond.
4. Other risks: For bonds in physical form, there are also the risk of counterfeit and loss.

1. Macroeconomic factors: The supply and demand of funds, monetary policy of the Central Bank (which is reflected in interbank call loan market, short-term financing market, short-term interest rate levels in the money market, etc.), price level (which is reflected in money supply, long-term time deposit rates and other long-term interest rate indicators), economy or international financial situation.
2. Market factors: Supply and demand for bonds, market liquidity, issuer's credit standing, market maker activities, and the number and attitude of market participants.