Equity Blue

In the recent article it is mentioned that issued bonds are being traded in a so-called secondary market. Bonds are traded for a price, which is being generally set by supply and demand. Factors that determine bond prices will be reviewed in detail in the next article. Now, let us focus on one of the very significant parameters, which are being closely observed by bond investors: the so-called yield to maturity (often abbreviated to YTM ). The yield to maturity is a number presented in percentage points, which says to the bond investor what is going to be the real annual profit (yield) when purchasing a given bond. The key parameter, or say a variable, for the calculation of the yield to maturity is the actual price of the bond, for which the investor can buy it. The investor knows that the particular bond generates a fixed annual coupon, and that in the maturity of the bond, he gets back the nominal value of the bond. Let us show the concept of the yield to maturity in an exem...

Bonds are traded in markets in percentage points of their nominal values. Whether in financial media, banks, or on stock exchanges, we can often see bond prices quoted as, for example, 101 %, 103.2 %, etc. Practically it means that one piece of a bond, which has, say, a nominal value of USD 1 000, can be really bought for USD 1 010 in case of a price of 101 %, or for USD 1 032 in case of a price of 103.2 %. Bond traders do speak their specific language. It can be heard, for example, something like: "I sell the nominal of a million dollars of bond XYZ for 101". It means he wants to sell, say, 1000 pieces of a bond with a nominal value of USD 1000 a piece for a price of 101 %, i.e. he expects to receive for the whole nominal a sum of USD 1 010 000. Primary versus Secondary Market A new bond issue is usually first offered by the issuer to big institutional investors within a so-called primary auction . By the primary auction the bond gets to the market. After the pri...

Bond is one of the basic investment instruments, in which an investor can put his free financial means. It is a security, by which the issuer of a bond borrows money. The bond issuer is therefore a debtor, and the investor, who buys the bond, is a creditor. A bond is therefore an alternative to a classical bank loan. Among major bond issuers are usually sovereign governments, corporations, and municipalities. For all these mentioned issuers bonds represent a significant source of financing their investments activities. Issuers offer their bonds directly to investors. Bond versus Equity Bond as such belongs next to equity (a share) to the most basic types of securities. However, the investment motives of a shareholder differ from the investment expectations of a bondholder. A bondholder: •   targets at the fixed income, which is being offered by the bond. •   does not have the right nor usually the interest to influence the management of the issuing company. ...