Singaporeans invested more than S$8 billion in structured products in the first quarter alone, according to a report released by the Monetary Authority of Singapore in late April 2025, marking a record increase in these investments. That demonstrates your interest in cutting-edge strategies for financial growth and protection. Credit linked notes are one structured product that is gaining popularity. It is possible that you have heard of credit linked notes. Let us examine their definitions and potential implications for your investment path.
Credit Linked Notes: What Are They?
One kind of structured credit product is what you are looking at when you examine credit linked notes. What occurs is that a bank or other financial institution bundles corporate bonds into a package linked to a particular credit event. As the investor, you consent to receive a yield that frequently surpasses the rates of conventional bonds. Your risk of one of those companies defaulting is offset by that additional return.
Reasons to Think About Credit-Linked Notes
Most likely, you are looking for stability with potential. Interest payments on a plain corporate bond are predictable. The potential interest rate is higher when you have credit-linked notes. For that reward, you give up some certainty. You get paid on a regular basis if the mentioned business remains solvent. Otherwise, you may experience reduced profits or even losses. When you own credit-linked notes, that is the situation.
The Role of Risk
Here, risk is crucial. Suppose you choose credit-linked notes associated with a reputable Singaporean company. Its credit score plummets. The note may pay out less than anticipated if a credit event, such as a bond default or downgrade, takes place. Your capital may be eroded by that loss. The additional yield of credit-linked notes may be of interest to you if you are comfortable with those situations.
Advantages You Should Be Aware Of
The yield is higher than that of conventional debt instruments. If all goes well, you could get regular payments and possibly earn a capital return. Additionally, you have access to issuers or markets that you might not otherwise purchase directly. Your exposure may be diversified as a result.
Details to Recognize
Suppose you purchase credit-linked notes that are associated with corporate credits in the Asia-Pacific region. Interest rates or the state of the economy can suddenly change. That might cause the note’s value to decline before it matures. You might not receive your money back if you sell too soon. Liquidity can change. You should find out what fees apply and whether the note permits full selling or early redemption.
The definition of a credit event is important if one does occur. Some definitions are too general. Others explain the specifics of what a default is. To find out exactly what could cause you to lose money, you must read the fine print. You are shielded from surprises by that clarity.
Who Must Take Them into Account?
If you have some experience with bonds and structured products, credit linked notes might be a good fit for you. You may already own corporate bonds and know how to evaluate credit quality. Additionally, your time horizon might coincide with the note’s maturity. Before attempting credit-linked notes, you might want to start with more straightforward fixed income options if you are more cautious or unfamiliar with these instruments.
A well-rounded portfolio may include credit-linked notes. Yields are higher than those of many conventional fixed-income instruments. You assume credit risk associated with particular issuers or occurrences. They can help you diversify and access returns that government bonds and deposits might not provide.
Do your research if that interests you. Examine the issuer’s financial situation and learn about the definitions of the credit event triggers. If you require early access to your money, find out how liquid the note may be. That degree of specificity can mean the difference between a pleasant surprise and a wise investment.
Please contact your bank if you would like more information about credit-linked notes or assistance in locating one that aligns with your objectives. They can help you make the best decision by guiding you through the available options.
