What is a New Issue?
At launch, bonds are sold to investors via an investment bank or broker. This is known as the primary market. Gilt issues are also offered directly to the general public.
After this primary phase, bonds are then free to trade between investors and/or market counterparties. However, unlike equities that trade through a centralised stock exchange, bonds generally trade on a peer-to-peer basis from one institution (such as an investment bank) to another (such as a broker).
Benefits and risks to investors investing in a New Issue
- No stamp duty payable
- No commission charged on your initial investment
- The Issuer and the Guarantors could go out of business or become insolvent, you may lose some or, in the worst case scenario, all of your investment.
- The Issuer could become the target of a leveraged buyout, increasing the degree of risk of lending money to the company.
- Bonds are not covered by the Financial Services Compensation Scheme
- Inflation will reduce the real value of the asset over time.
- Bond prices fluctuate from day to day according to the balance of supply and demand in the market. If you need to sell the asset before the Maturity date you could face a risk of capital loss.
- You may not receive the full amount that you have applied for as the issuer may scale back the applications if the offer is oversubscribed.
- Many bonds are issued with embedded features such as "calls", which enable the issuer to repay the debt ahead of schedule and can be disadvantageous to the holder.
- Tax treatment depends on the individual circumstances of each client and may be subject to change in future.
- You are not guaranteed to make a profit; the value of your investments can go down as well as up. You may not get back all the funds you invest.