An introduction to the bond markets by Patrick J. Brown

By Patrick J. Brown

This e-book supplies an advent to the bond markets for practitioners and new entrants who have to comprehend what they're, how they paintings and the way they are often used, yet do not need to be intimidated by way of mathematical formulae. through the top of the booklet readers can be in a position to make a decision even if to speculate within the bond marketplace. The mathematical formulae should be relegated to the appendices and supplemented by way of a spouse site which permits clients to go into their very own bond industry investments, to simulate expected occasions and notice the implications.

  • Patrick Brown is famous as Chairman of the eu Bond fee (recently retired)
  • The merely bond e-book that doesn't count seriously on mathematical formulae

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125 % on 15 February each year until it is redeemed at par (100) on 15 August 2013. 2 4 % France Obligations Assimilables du Tr´esor (OAT) 25 April 2055 In 2005, the French Treasury issued this 50 year bond. It pays a coupon of 4 % on 25 April each year up to and including its redemption at par on 25 April 2055. 3 2 12 % UK Consolidated Loan (Consols) – Perpetual This security was created in 1888 as a result of consolidating three previous bonds, notably: 3 % Consolidated Annuities, originally issued in 1752; 3 % Reduced Annuities of 1752 and 10 An Introduction to the Bond Markets 3 % New Annuities of 1855.

With floating-rate notes the issue price is usually very close to par (100). Issuers often impose restrictions on the amount of movement that is permitted on the FRN coupons. Typical restrictions include: ‘caps’, where irrespective of how high the indicator goes the maximum annual coupon rate is ‘capped’ at the specified rate; ‘floors’, where the coupon rate cannot fall below the specified minimum rate. In the past some issuers have issued so-called ‘corridor’ issues where there has been both a maximum and a minimum interest rate.

1 % 18 An Introduction to the Bond Markets Floating-rate notes are quoted with a percentage clean price in the same way as vanilla fixed-rate bonds. As the next coupon rate is normally already known at the start of the period, there is no problem in calculating accrued interest. However, these calculations are slightly different to those of fixed-rate bonds. The main difference is that as floating-rate notes are treated as quasi-money market instruments, the coupon payment dates are modified to always occur on a day when the relevant market is open.

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