Fixed Income via RIM Securities Ltd

RIM Securities Limited (RIMsec) is a licensed Securities Dealer and is regulated by ASIC. Our mission is to provide high level and independent assistance to clients to invest in a diverse range of interest rate products, with an emphasis on achieving the best price for clients.

RIMsec specialises in the marketing and distribution of regular income investments at both primary and secondary level via traditional broker assisted channels. RIMsec is a pure distribution entity. One of our fundamental policies is never to originate or issue our own product to ensure we are always in a position to offer independent and unbiased advice to our clients.

RIMsec provides a comprehensive service including portfolio construction, valuation and liquidity support adhering to strict regulatory guidelines in relation to education and transparency.

Bonds & Floating Rate Notes

A fixed rate bond is a long term debt instrument that pays a specific rate of interest calculated on the face value over its life to maturity. A bond or a debt security is issued by such entities as governments or their agencies (e.g. statutory authorities), banks, or large corporations, where the bond holder is a creditor of the issuer. Debt securities typically include bonds, debentures and unsecured notes.

Fixed Rate bonds can be contrasted with Floating Rate Notes (FRNs) which pay a variable rate of interest where the rate is reset according to the payment period. The return is calculated as the base rate (risk free rate) plus a premium (extra interest) for the extra risk depending on the issuer of the bond. The rate of return you receive moves in line with the general level of interest rates, and is typically based off the benchmark 90 Day Bank Bill Swap Rate (BBSW) which is set by the interbank market at 10:10am each day.

The specific advantages in investing in Floating Rate Notes include:

• Known return over BBSW;
• Known quarterly cash flow - coupon resets typically every 90 days in line with interest rate movements;
• Tradeable on secondary marking in normal market conditions;
• Provide protection against rising interest rates;
• Minimal administration as the coupon is automatically paid and reset every quarter (typically) until maturity;
• Principal is repaid in full upon maturity (subject to the issuer remaining solvent until maturity); and
• No ongoing fees.

Issuers of Bonds and FRN’s can pay for a credit rating to individual issues by a major global ratings agency such and Standard and Poor's, Moody's or Fitch. The assigned rating is a measure for the relative creditworthiness of the issue, which range from the highest investment quality (least investment risk) to the lowest investment quality (greatest risk). Bonds rated below “investment grade” are typically referred to as “non-investment grade” or "Junk Bonds". However, not all bonds are rated. A non-rated bond does not always reflect poorer quality credit; the issuer just may not have applied for a rating. This situation requires the investor to ascertain the credit quality themselves by utilising alternative investment criteria.

Terminology

While a bond is simply a promise to pay interest and repay the principal on maturity date, there is some standard terminology used in the fixed income market:

• The issuer is the entity who borrows an amount of money (issuing the bond) and pays the interest.
• The principal or face value of a bond is the amount that the issuer borrows.
• The coupon (of a bond) is the interest that the issuer must pay.
• The maturity date is the date that the issuer must repay the principal and final coupon payment to the investor.
• The issue is another term for the bond itself.
• The information memorandum is the contract that states all of the terms of the bond.
• Bond – A transferable security denoting a direct financial obligation (loan) of an issuer (borrower) to an investor (lender)
• Bond Holder – The investor in the bond; a creditor of the issuer.

For a comprehensive glossary of fixed interest terminology, please click here.

Primary and Secondary Markets

The primary market is where securities are sold at the time they are first issued and the secondary market is a market where bonds that have been issued in the primary market are traded (bought and sold) via licensed securities dealers such as Rim Securities and other market participants.

For more information on bonds that can be purchased through RIM Securities please contact any of our sales team in Queensland, Victoria or South Australia.