By Moorad Choudhry
This e-book describes and defines bonds in the context of the capital markets and the different sorts of bonds which are traded. It features a precise examine the analytical options utilized in the marketplace through investors and fund managers. This new version will replace the part on swaps and possibility administration, replace all workouts and examples, upload a brand new part on credits derivatives, upload a piece on established finance securities & upload a bit on buying and selling. Contents additionally comprise: Bond yield size, rate of interest chance, the united kingdom gilt industry and company debt markets, chance administration, Off-balance sheet tools, together with swaps and techniques, and abroad and rising markets.
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Additional resources for An introduction to bond markets
A convertible bond is an issue giving the bondholder the right to exchange the bond for a specified number of shares (equity) in the issuing company. This feature allows the investor to take advantage of favourable movements in the price of the issuer’s shares. The presence of embedded options in a bond makes valuation more complex compared with plain vanilla bonds, and will be considered separately. OUTLINE OF MARKET PARTICIPANTS There is a large variety of players in the bond markets, each trading some or all of the different instruments available to suit their own purposes.
Short-term institutional investors – these include banks and building societies, money market fund managers, central banks and the treasury desks of some types of corporates. Such bodies are driven by short-term investment views, often subject to close guidelines, and will be driven by the total return available on their investments. Banks will have an additional requirement to maintain liquidity, often in fulfilment of regulatory authority rules, by holding a proportion of their assets in the form of easily tradeable short-term instruments.
Principal and coupon rate The principal of a bond is the amount that the issuer agrees to repay the bondholder on the maturity date. This amount is also referred to as the redemption value, maturity value, par value or face amount. The coupon rate or nominal rate is the interest rate that the issuer agrees to pay each year. The annual amount of the interest payment made is called the coupon. The coupon rate multiplied by the principal of the bond provides the cash amount of the coupon. For example, a bond with a 7% coupon rate and a principal of £1,000,000 will pay annual interest of £70,000.