Par or Face Value -
The amount of money that is paid to the bondholders at maturity. For most bonds this amount is $1,000. It also generally represents the amount of money borrowed by the bond issuer.
Coupon Rate -
The coupon rate, which is generally fixed, determines the periodic coupon or interest payments. It is expressed as a percentage of the bond's face value. It also represents the interest cost of the bond to the issuer.
A bond is a debt instrument requiring the issuer to repay to the lender / investor the amount borrowed plus interest over a specified period of time. A typical bond issue in the United States specifies a fixed date when the amount borrowed is due
A bond is simply a negotiable IOU, or a loan. Investors who buy
bonds are lending a specific sum of money (the principal) to the
bond issuer—a corporation, a government, or some other borrowing
institution—for a specified period of time (the term).Typically, the
bond issuer promises to make regular payments of interest to the
investor at a rate that is set when the bond is issued.This is why
bonds are often referred to as fixed income investments.
The term of a bond ends on the bond’s maturity date, when the
issuer repays to the investor the face amount listed on the bond.
When a bond is held to maturity, its face amount is repaid in full.
Before maturity, however, the value of a bond often fluctuates.
These continual changes in bond prices are influenced by many
factors, including interest rate movements, supply of and demand
for bonds, changes in the financial health of bond issuers, returns
offered by other investments, and the maturity date of a bond.
Price fluctuations will be addressed more fully on pages 12 and 13....
The credit quality of a bond depends on the issuer’s ability to pay
interest on the bond and, ultimately, to repay the principal upon
maturity. Independent bond-rating agencies evaluate the financial
health of bond issuers and issue alphabetical credit-quality ratings.
Usually a lower credit rating means that the issuer must pay
higher interest to offset the higher risk that principal and interest
won’t be repaid on time. Figure 2 on page 10 describes the ratings
used by Moody’s Investors Service, Inc., and Standard & Poor’s
Like corporate bonds,municipal bonds come with a variety of
ratings to reflect the fact that some state and local governments
are financially stronger than others.Municipal bonds, which have
maturities ranging from less than 1 year to 40 years, are also
known as tax-exempt, or tax-free, bonds.
Investing in individual bonds
An investor may purchase individual bonds for a number of
reasons. First, the investor may have great confidence in the ability
of the bond issuer to make all interest payments as promised and
to repay the principal in full upon maturity....
As the financial system in most emerging economies is centred on banks, an important aspect of the
development of bond markets is the impact on the banking system. One frequently heard worry is that
bond markets could take business away from the banks. This raises some potential concerns for bank
supervisors. On the other hand, if it means firms are less vulnerable to weaknesses in the banking
system, corporate bond issuance can help central banks achieve steady economic growth.
With an indexed bond, the
interest and maturity value are adjusted by the rate
of inflation over the life of the bond. Because the
cash flow of an indexed bond is adjusted for inflation,
the bond’s real value does not vary with inflation,
protecting investors and issuers alike from
Inflation indexed bonds would be a fundamental
innovation in U.S. financial markets, providing
benefits to investors, the Treasury, and policymakers.
Despite the potential benefits, the U.S. Treasury
has never issued indexed bonds.
An inflation indexed bond protects both investors
and issuers from the uncertainty of inflation over
the life of the bond.1 Like conventional bonds,
indexed bonds pay interest at fixed intervals and
return the principal at maturity. The fundamental
difference is that while conventional bonds make
payments that are fixed in nominal dollars (and thus
are called nominal bonds), indexed bonds make payments
that are fixed in real terms (and thus are called
Bonds are securities that establish a creditor relationship between the purchaser (creditor) and the
issuer (debtor). The issuer receives a certain amount of money in return for the bond, and is
obligated to repay the principal at the end of the lifetime of the bond (maturity). Typically, bonds
also require coupon or interest payments. Since all these payments are determined as part of the
contracts, bonds are also called fixed income securities.
A straight bond is one where the purchaser pays a fixed amount of money to buy the bond.
The issuer sells
bonds to capital market investors and the proceeds are deposited in a collateral
account, in which earnings from assets are collected and from which a ﬂoating rate
is payed to the SPV. The sponsor enters into a reinsurance or derivative contract
with the issuer and pays him a premium. The SPV usually gives quarterly coupon
payments to the investors. The premium and the investment bond proceeds that
the SPV received from the collateral are a source of interest or coupons paid to
Clean renewable energy bonds (CREBs) present a low-cost opportunity for public entities to issue bonds to finance renewable energy projects. The federal government lowers the cost of debt by providing a tax credit to the bondholders in lieu of interest payments from the issuer. Because CREBs are theoretically interest free, they may be more attractive than traditional tax-exempt municipal bonds.
In February 2009, Congress appropriated a total of $2.4 billion for the “New CREBs” program.
This paper discusses the development of a valuation model for convertible
bonds with hard call features. We define a hard call feature as the possibility
for the issuer to redeem a convertible bond before maturity by paying
the call price to the bondholder.
We use the binomial approach to model convertible bonds with hard call
features. By distinguishing between an equity and a debt component we
incorporate credit risk of the issuer. The modelling framework takes (discrete)
dividends that are paid during the lifetime of the convertible bond,
The rapid mortgage credit growth experienced in recent years in mature and emerging countries has
raised some stability concerns. Many European credit institutions in mature markets have reacted
by increasing securitization, particularly via mortgage covered bonds. From the issuer’s
perspective, these instruments have become an attractive funding source and a tool for assetliability
management; from the investor’s perspective, covered bonds enjoy a favorable risk-return
profile and a very liquid market.
Stability Bonds would facilitate portfolio investment in the euro and foster a more
balanced global financial system. The US Treasury market and the total euro-area sovereign
bond market are comparable in size, but fragmentation in euro-denominated issuance means
that much larger volumes of Treasury bonds are available than for any of the individual
national issuers in the euro area. On average since 1999, the issuance size of 10-year US
Treasury bonds has been almost twice the issuing size of the Bund and even larger than bonds
issued by any other EU Member State.
In the mid-1990’s catastrophe bonds (CAT bonds), also named as Act of God or
Insurance-linked bond, were developed to ease the transfer of catastrophe based
insurance risk from insurers, reinsurers and corporations (sponsors) to capital
market investors. CAT bonds are bonds whose coupons and principal payments
depend on the performance of a pool or index of natural catastrophe risks, or
on the presence of speciﬁed trigger conditions.
The Indian bond market is, however, less well-developed. While having seen rapid development
and growth in size, the government bond market remains largely illiquid. Its corporate bond
market remains restricted in regards to participants, largely arbitrage-driven (as opposed to
driven by strategic needs of issuers) and also highly illiquid. The lack of development is
anomalous for two reasons: First, India has developed world-class markets for equities and for
equity derivatives supported by high-quality infrastructure.
Until 2007, information on Indian corporate bond market turnover was incomplete and largely
anecdotal. In 2007, however, the Securities and Exchange Board of India (SEBI) launched
initiatives to ensure more comprehensive reporting of the over-the-counter (OTC) bond market
(Figure 8). Current volumes are running at low levels—around 140 transactions amounting to
about USD80 million per day. But corporate bond markets worldwide are typically illiquid,
may be overly optimistic to expect India to develop a uniquely liquid corporate bond market.
In IONIC BONDING the valence electrons are completely
transferred from one atom to the other atom.
Ionic bonds occur between metals and nonmetals
when there is a large difference in electronegativity. In COVALENT BONDING the valence electrons are
shared as pairs between the bonded atoms.
Pure covalent bonding only occurs when two nonmetal
atoms of the same kind bind to each other. When two
different nonmetal atoms are bonded or a nonmetal and
a metal are bonded, then the bond is a mixture of covalent
and ionic bonding called polar covalent bonding.
The market for high yield or speculative-grade bonds1
has grown from $30 billion of outstanding bonds in 1980
to nearly $250 billion today. Over this period, the market
has evolved from a collection of “fallen angels”—bonds
that have lost their investment-grade rating—into an
established capital market for raising funds.
Although the high yield market is now mature, its
behavior during business cycle downturns is not well