Bonds type instruments are long-term debt instruments with original maturity longer than a year. They are issued by either the governments to finance fiscal deficit as well as corporations to finance projects, which require large sum of immediate cash. Unlike short term debt instruments described in Chapter 1, bonds pays periodic coupon interest to the bondholders.
A bond basically has the following features:
The Malaysian government issued coupon bearing bonds known as Malaysian Government Securities (MGS) which pays semiannual coupon. Coupon interest convention is Actual/Actual with no adjustment made to the interest calculation even if the coupon date falls on a holiday. Coupon payment, however, will be adjusted to the next business day in cases where the date falls on a holiday. Purchase of a new MGS issue is done by tender through FAST (Fully Automated System for Issuing/Tendering) submitted via principal dealers (PDs) appointed by BNM. Announcement for any MGS issuance is done a few days prior to the tender/issue date. Upon an announcement, the MGS will be available for trading for value spot from issue date and the trading will in terms of yield until the tender result is announced and the coupon rate known.