CFA固定收益证券 (9)

CFA固定收益证券
Chapter 1.6 Bond Cash Flow Structures 第一章第六节：债券的现金流结构
Suppose we have a bond with a principal amount of $1,000, the maturity is 5 years, the coupon rate is 6%, and interest payment are made annually. If it is a Bullet Bond, it pays the entire principal amount at maturity.
Suppose we have a bond with a principal amount of $1,000, the maturity is 5 years, the coupon rate is 6%, and interest payment are made annually. If it is a Fully Amortized Bond, it makes equal periodic payments (including both interests and principal) and the principal is fully paid off when the last periodic payment is made.
Suppose we have a bond with a principal amount of $1,000, the maturity is 5 years, the coupon rate is 6%, and interest payment are made annually. If it is a Partially Amortized Bond, it also makes equal periodic payments (including both interests and principal) but only a portion of principal is repaid by the maturity, so that a balloon payment is required to retire the outstanding principal at maturity.
Sinking Fund Arrangements
A Sinking Fund Arrangement specifies the portion of the bonds
principal outstanding that must be retired each year throughout the bonds life or after a specified date.
•For example, a 20-year issue with a face amount of $300 million may require that the issuer retire $20 million of the principal every year beginning in the sixth year.
Issuer can redeem bonds either by buying bonds directly from the open market, or by drawing a lottery.
•Market price of the bond < sinking fund redemption price, buy from the open market.
•Market price of the bond > sinking fund redemption price, draw a lottery.
Advantage: bondholders have less credit risk.
Disadvantages:
•Bonds are redeemed at a price lower than the market price; •Bondholders can only reinvest the proceeds at a lower interest rate.
Fixed-Rate Coupon Bond. The bond pays fixed periodic coupons until maturity.
Floating-Rate Notes (FRNs, or Floaters). Their coupon rates are linked to an external reference rate, such as LIBOR.
•Most floaters have quarterly coupons.
•In most cases, Coupon Rate = Reference Rate + Fixed Spread.
•If the spread is not fixed, the bond is called a Variable-Rate Note.
•It may have a Cap and a Floor. The cap places a maximum on coupon rate, while the floor places a minimum on coupon rate.
Inverse Floaters. Their coupon rates increase when the reference rate decreases and vice versa.
Step-Up Coupon Bonds . Their coupons increase by specified margins at specified dates.
•It provides protection to investors when the market interest rate increases.
•Typically, step-up coupon bonds have a call feature that allows the firm to redeem the bond at a specified price at each step-up date.
•If the market interest rate decreases or remains stable, the issuer has incentive to call back the bonds before coupon rate increases.
Coupon Rate
Year 0246810Maturity
4%
5%
6%
7%
8%
Credit-Linked Coupon Bonds. Their coupons change when the bonds’ credit ratings change.
•They are attractive to investors who are concerned about the future creditworthiness of the issuer.
•Increases in the coupon payments may ultimately result in further deteriorations of the credit rating or even contribute to the issuer 's default.
Payment-in-Kind (PIK) Coupon Bonds. They allow the issuer to pay interest in the form of additional amounts of the bond issue rather than as
a cash payment.
•Typically have a low credit rating.
•Investors of PIK coupon bond require a high return.
Deferred Coupon Bonds (or Split Coupon Bond). They pay no coupon for first few years but then pay regular coupons for the remainder of its life.
•Normally issued at a discount.
•May provide tax advantage to investors.
• A zero-coupon bond can be considered as an extreme form of deferred coupon bonds. Index-Linked Bonds. They have their coupon payment and/or principal payment linked to a specified index. Inflation-linked bonds are the most common type of index-linked bonds.
•Interest-Indexed bonds. The coupon rate is adjusted for inflation while the principal value remains unchanged.
•Capital-Indexed bonds. The coupon rate remains unchanged while the principal value is adjusted for inflation. Therefore, both interest payments and principal
repayment are adjusted for inflation. For example, U.S. Treasury Inflation Protected Securities (TIPS).。