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elearning > Fixed rate bonds
Learn about the following:
What fixed rate bonds are and how they work. Some of the key terms used in the market. Why issuers and investors use fixed rate bonds. How fixed rate bonds can be evaluated. The risks fixed income bonds have.
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Course Summary
- 60 minutes
- 14 question multiple choice
- What fixed rate bonds are and how they work
- Some of the key terms used in the market
- Why issuers and investors use fixed rate bonds
- How fixed rate bonds can be evaluated
- The risks fixed income bonds have
Fixed Rate Bonds - the details
1. How fixed rate bonds work
- Principal and coupon payments
- Maturity, currency, credit, price
- Price quotes
- International Securities Identification Number
- Accrued interest, clean and dirty prices
- Settlement and transfer
- Static data
2. Issuers and investors
- Issuers preferences
- Investors preferences
3. Evaluation of fixed rate bonds
- Cashflows, net present value
- Yield to maturity
- Price and yield
- Spread to treasuries
- Spread to swaps
- Affect of credit and liquidity on spread
- How traders use spreads, pricing and relative value
4. Bonds and risk
- Credit risk, credit losses
- Market risk, measurement, example
- Liquidity risk
- Foreign exchange risk
5. Summary
6. Test
Related Documents
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4th March 2010
A bond is a long term debt obligation. It is sold by the borrower who is called the "issuer" in order to borrow money for the medium and long term. Typically a bond will have a maturity of between 2 and 20 years. The issuer can be a bank, company or government institution. A bond normally has a known maturity or redemption date and during its life pays the investor interest. The interest payments are called "coupons". Bond investors rank prior to equity holders in liquidation but are subordinate to secured lenders. From an issuer's perspective the coupons are usually tax deductible (unlike dividend payments on equity). Bond markets provide investors with variety. One of the most frequently issued bonds is called a fixed coupon bond. This is also referred to as fixed income security or fixed rate bond.
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Borrowers (issuers) often use the bond market to access medium and longer dated funding. Some issuers prefer variable rate liabilities, some fixed rate liabilities. All issuers want to be able to borrow the required amount at the lowest possible cost but just how does a fixed coupon bond issuer calculate the cost of funds on a floating rate basis? Let's see.
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Covered bonds offer both banks and building societies the opportunity to raise much needed long term liquidity at a cost that is lower than that of senior debt. This is because for the investor there is a ring fenced pool of mortgage collateral and this provides enhanced security should the issuer default. It is therefore no surprise that regulators in many countries are keen to encourage covered bond issuance in order to resolve the funding gap that many banks have in their balance sheets.