When you buy a bond you can either hold onto it until it reaches maturity and receive regular interest payments as well as principal at its maturity, or you can sell it before the due date, on the secondary market. The new owner of the bond will then be entitled to receive the regular interest payments and the principal at the end of the holding period. The resale value of a bond is almost invariably different from the face value. This is because of fluctuating interest rates - the resale value is based on the interest rates at the time the sale goes through. When interest rates fall the value of the bond goes up, when they rise the value of the bond goes down.

 

Mr. X invested 100,000Bt worth of bonds with a ten-year maturity, which carried an interest rate of five percent.(semi-annual coupon payment)   After one year he has decided to sell, but in the meantime interest rate yields have risen to six percent. The new holder of the bond will also receive the 5,000Bt a year coupon interest rate, even though the going market rate on the same investment has now risen to 6,000Bt. He needs to be compensated for his lost investment opportunity. The bond will therefore be sold to him at a price of 93,123Bt - a  loss compared with the face value of 100,000Bt.

 

From the buyer's perspective this is fair value. From Mr X's perspective it is still a reasonable investment. He has received 5,000Bt in interest payments in the first year and he now has the opportunity to reinvest his money at the higher market rates - so it might be a smart investment decision.

 

Mr. Y also bought 100,000Bt worth of bonds with a ten-year maturity at an interest rate of five percent (semi-annual coupon payment). After one year, he too decided to sell, but in his case, interest rates had fallen to four percent. He will make a capital gain when he sells his investment - its market value has risen to 107,496Bt, compared with its face value of 100,000Bt.

 

Sellers of government bonds will find a ready market because of the high volume of bonds available and the large pool of potential buyers. It is thus a market with high liquidity. The public market for corporate debentures is less liquid as there is a lower volume and fewer individual buyers and sellers. This is  because most corporate debentures that circulate in the market are issued in the form of private placement. Therefore, the minimum amount for an individual investor is 10 million Baht.