Chapter 10Bond Markets(金融市场学)
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Tre源自文库sury Bonds
Treasury Bond Quotations
8.38 Aug. 2013-18 103:05 103.11 YTM?
Coupon rate Maturity date Bid/Ask price as percent of face value Fractions of price in 32nds
Example:
Bid price 103:05, Ask price 103:11
Yield to Maturity (YTM)
U. S. Treasury Bond Yield To Maturity
$83.80 Pmt
2013 – Today =N
$1000 Ask Price = FV
Federal Agency Bonds
Government National Mortgage Association (GNMA)
Issues bonds and uses proceeds to purchase insured FHA A U.S. Government Agency Backed by explicit guarantee of Federal Government Example of social allocation of capital
Tax Reform Act of 1986 placed limitations on tax-exempt bond issuance for private purposes
Corporate Bonds
When corporations want to borrow for longterm periods they issue corporate bonds
Background on Bonds
Bonds represent long-term debt securities
Contractual Promise to pay future cash flows to investors
The issuer of the bond is obligated to pay:
Stripped Treasury bonds
Zero-coupon
securities are sold with claims on U. S. Treasury bonds held in a trust
One security represents the principal payment (np) at maturity Other securities represents the interest payments (ci) at interest paying dates
Bond collateral
Usually
consists of a mortgage on real property Unsecured bonds are called debentures and are backed only by the general credit of the issuing firm
Federal Agency Bonds
Federal Home Loan Mortgage Association (Freddie Mac)
Issues bonds and uses proceeds to purchase conventional mortgages A U.S. government-sponsored agency No explicit guarantee of bonds by federal government, but credit risk is very low Used to provide liquidity for thrifts and support of home ownership
Corporate Bonds
Corporate Bond Terminology
Indenture
Legal
document specifying rights and obligations of issuer and bondholder bondholders to assure compliance with
Background on Bonds
Bond Yield to Maturity
The yield to maturity (YTM) is the yield that equates the future coupon and principal payments with the bond price
Municipal Bonds
State and local government obligations
Revenue bonds vs. general obligation Bonds
Investor interest income exempt from federal income tax
Variable-rate bonds Convertible bonds
Corporate Bonds
Junk Bonds
Junk bonds are also called high-yield bonds or noninvestment rated bonds Popularized in the direct finance boom of the 1980s The risk premium is between three and seven percent above Treasury bonds and susceptible to contagion effects Secondary market supported by dealer market
Background on Bonds
Bonds by Issuers
Issuer Federal Government (U.S. Treasury) Federal Agencies State and Local Governments Corporations Type of Bond Treasury Bonds Federal Agency Bonds Municipal Bonds Corporate Bonds
The YTM is the investor’s expected rate of return if the bond is held to maturity The actual YTM may vary from the expected because of risks assumed by the investors
Usually pay semiannual interest Most have maturities between 10-30 years Public offering vs. private placement Limited exchange, larger OTC secondary market Investors seek safety of principal and steady income
Trustee
Represents
indenture
Corporate Bonds
Corporate Bond Terminology
Sinking Fund Provision
Requirement
that the firm retire a certain amount or number of bonds each year Protects investors with principal reduction
Protective Covenants
Places
restrictions on the firm to protect bondholders Examples: limits dividends and officer salaries, restricts additional debt
U. S. Treasury Bonds
Issued by the U.S. Treasury to finance federal government expenditures Maturity
Notes, < 10 Years Bonds, > 10 to 30 Years
Active OTC Secondary Market Semiannual Interest Payments Benchmark Debt Security for Any Maturity
Treasury Bonds
Inflation-Indexed Bonds
Intended for investors who seek inflation protection with their investments Coupon rates less than other Treasuries Principal value adjusted for the U.S. inflation rate (CPI) every 6 months Coupon income increases with inflation
CHAPTER10 Bond Markets
Chapter Objectives
Provide informational background on U.S. Treasury, state and municipal, and corporate Bonds Calculate bond yield from quote Explain the role of bonds to institutional investors Discuss the globalization of bond markets
Interest (or coupon) payments periodically usually semiannually Par or face value (principal) at maturity
Primary vs. secondary market for bonds
Background on Bonds
Corporate Bonds
Corporate Bond Terminology
Call provisions: Ability to pay bonds off early
Call
premium Advantage to issuers; disadvantage to investor
$1033.44 PV*
Calc YTM
*Ask
Price = 103 and 11/32 % of Face Value or $1033.4375
Treasury Bonds
Cash Flow Variation in T-Bonds
Coupon bonds
Interest
paid semiannually To registered bondholders
Corporate Bonds
Corporate Bond Terminology
Low-coupon and zero-coupon bonds
Provide
investors known rate of return Imputed interest income taxed if not in tax-sheltered investment plan Attractive to pension funds with expected payouts
Bond Interest Rates The issuer’s cost of financing with bonds is the coupon rate
Determined
by current market rates and risk Usually fixed throughout term Determines periodic interest payments