By Patrick J. Brown
This publication 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 means of mathematical formulae. via the tip of the publication readers can be capable of come to a decision no matter if to take a position within the bond industry. The mathematical formulae could be relegated to the appendices and supplemented by means of a spouse web site which permits clients to go into their very own bond marketplace investments, to simulate expected occasions and notice the results.Patrick Brown is recognized as Chairman of the ecu Bond fee (recently retired)The basically bond booklet that doesn't count seriously on mathematical formulae
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Additional info for An Introduction to the Bond Markets (The Wiley Finance Series)
1 COMPOUND INTEREST You have all heard the old adage that the value of a security is that price at which there are the same number of buyers as sellers. If the security is reasonably liquid, the price moves up and down in small steps according to the perception of the buyers and the sellers. Unfortunately, this does not help in the case of a bond which is illiquid and has not traded for six months. Here the last traded price may have very little relevance to what the bond is worth. Even if the perceived status and rating of the issue has not changed, its value may have changed considerably due to large swings in interest rates since the last transaction.
2 % above the London Interbank Offer Rate for three month sterling deposits. 15 Barclays Bank plc Floating-Rate Primary Capital Notes – Perpetual The company issued $600 million of the notes in 1985. Interest is payable semi-annually initially on 16 January and 16 July. For each semi-annual period it is set in advance to be 1 % above the mean of the London Interbank Bid Rate and the London Interbank Offer 4 Rate for six month dollar deposits. 16 Italy Certificati di Credito del Tesoro 2008 €3 billion of the notes were issued in 2001 for redemption at 100 on 1 September 2008.
3 INDEX-LINKED BONDS An index-linked bond is a bond where the coupons and the redemption value are linked to some external index. This index frequently measures the inflation in the country where they are issued. Thus a holder of index-linked bonds gets a return that is inflation proof relative to 20 An Introduction to the Bond Markets the index. As a result of this inflation-proofing attribute, index-linked bonds are usually issued by governments in their domestic currency. g. in the case of a mining company, bonds linked to the world price of the mineral ore they are extracting.