Talk:Bond (finance)
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Government savings bonds, which have special features and are not normally marketable, are often confused with regular bonds. Government savings bonds tend to be cashable with the principal fully guaranteed by the issuer. These bonds are traditionally sold through banks. There are no coupons. Discounting is not meaningful because both the principal and accrued interest tend to be payable on demand under certain conditions. The bonds are often available at fixed or variable interest rates. The denominations tend to be small. A Canada Savings Bond may be purchased for as little as $100.
Although there are some exceptions, marketable bonds sold through dealers generally have fixed yields. What fluctuates is the market price, which changes the effective yield. A popular denomination is $1,000 although some dealers might have a higher minimum such as $5,000.
[edit] Is there a difference between the par value of a bond and its principal?
Is there a difference between the par value of a bond and its principal?
- To my knowledge, principal is usually not used to refer to a bond. This is probably because the price of bond change, varying redemption value exist for some bonds, and the outstanding balance (principal left unpaid) change in case of an amortized bond.
- Par is the amount printed on the bond. Voidvector 00:33, Oct 31, 2004 (UTC)
Actually principal is often used to refer to the amortized amount. So if you have a bond that doesn't amortize, Par=Principal, the principal is always the same as the original face value of the bond. But for bonds that can be paid down: Par stays the same (original face value), principal can be paid down (current face value becomes lower than par). When you carry an amortizing bond (like a capitalized lease, or a car payment) on financial statements, you show it's current value as principal+interest owed. This is NOT the same as the present value of the bond which is (price*.01*principal)+accrued interest. tristanreid
[edit] Spreads?
Can anyone explain what exactly is meant by the phrase "spreads on corporate bonds"? MartinC
Sure, Martin. Here's an answer, then a more thorough explanation:
Brief answer-The spread is the yield on the corporate bond minus the yield on a similar treasury bond. Bond traders don't want to memorize or figure out what an appropriate yield would be when they trade corporate bonds or different maturities and coupons. It's much easier to just say how close the corporate bond is to a similar treasury bond. The difference between the two is called the spread, and is a measure of the credit risk associated with the corporation that issued the bond.
Longer explanation with the details spelled out-The prices of bonds are determined by how much people are willing to pay for them. The reason that not everyone just goes for the bond with the highest yield is that some bonds are more risky than others. Generally this trade-off gives a direct a risk/return relationship, the more risk on the bond, the more it has to yield for people to buy it, so the cheaper it will be to buy it. All bonds are sensitive to interest rates. So if you have a treasury bond you are mainly exposed to interest rate and reinvestment risk. Treasury bonds are generally considered the safest kind of bond, so there is no credit risk. If you invest in a corporate bond that has the same type of characteristics (maturity, coupon) of a treasury bond, you can assume it has the same amount of interest rate and reinvestment risk, plus some amount (a 'spread') of credit risk. Tristanreid 16:04, 19 May 2005 (UTC)
[edit] Major changes to the entry
I’ve made many amendments to this entry. In fact, I have almost rewritten two main paragraphs. Apart from the fact that certain parts were just wrong, vague or only US focussed, my main problem with this article is that it does not differentiate between what is important, and what are details. Certain discriptions, such as that of high yield bonds, were very long, and belong more in a specific entry. Also, all the information about asset backed securities, should not be given in a general bond entry.
Most of the ‘bond’ entry is still just a list of characteristics and classifications. I believe that these should be kept as brief as possible. Instead, more information should be given on how issuance and trading work, who the players are, what the risks are, etc.
I have not changed anything in the second half. Instead of the slightly confusing story that is there now, my suggestion would be to write paragraphs on:
- Trading (market making, trading conventions, who are involved, etc.)
- Investors (who buys bonds and why)
- Credit rating (credit spreads, how do these correspond to the risk perception of investors)
- Risks (interest rate risk, credit risk, liquidity risk, etc.)
- Alternatives (instead of the ‘arguments against bonds’, which is slighly POV)
Please let me know what you think.
The page would also benefit greatly from more data – how much bonds were issued, per type etc. At the moment someone who does not know anything about bonds might get the impression that Perpetuals are as common as FRN’s.
In general, the fixed income pages are a bit of a mess (yes, bonds should fall under fixed income). It seems a lot of work to clean it up. Any suggestions?
Phew, my first update in Wikipedia and already such a long story… Apologies.
[edit] Payment In Kind Bonds
What is the proper accounting for this security?
Hey, in the future, try to sign your questions. It's just a wikipedia etiquette thing, no big deal. You can automatically generate a sig by putting 4 tildes in a row. A tilde is the ~ symbol. So to answer your question: How do you mean account? A PIK is a bond where the coupons are paid in either cash or in more bonds (In Kind). If you're wondering how it looks on the financial statements, I'm pretty sure the balance sheet looks the same at first, and each in kind payment increments the marketable securities instead of cash. I don't think there's a difference on the income statement, it probably just goes under interest income, because marketable securities are cash equivalent anyway. Tristanreid 16:15, 13 January 2006 (UTC)
[edit] Can an expert talk about bonds that are equity-linked (like the yield depends on the s&p 500 or something) and why they are more and more popular
[edit] Proposed move
I think people could be meaning a lot of things by the word "bond", so Bond (disambiguation) should be moved here and this article moved to Bond (finance). -- King of Hearts talk 04:00, 28 March 2006 (UTC)
- If no one objects by Sunday, April 9, then I'll ask for the pages to be deleted and moved by an admin. -- King of Hearts talk 23:42, 3 April 2006 (UTC)
[edit] Merge Debenture with Bond (finance)
Disagree Debenture has a very specific meaning in the United Kingdom in relation to the issuing of debentures to finance arts and sports venues, and in terms of debenture holders (eg for Wimbledon, Wembley Stadium and the Royal Albert Hall) who get tickets and other privileges (the Google search for debenture ticket gets 85,000 results [1]). This meaning is simply not covered by Bond (finance), and I certainly wouldn't think of looking there for information about it. Humansdorpie 09:05, 28 April 2006 (UTC)
[edit] Debenture vs Bonds
According to the Debenture page, govenments can issue debentures. Can anyone tell me whats the difference between a government issued bond and a government issued debenture? 203.173.143.182 20:13, 18 May 2006 (UTC)
[edit] Zero coupon
"Zero coupon bonds do not pay any interest. They trade at a substantial discount from par. The bond holder receives the full principal amount as well as the accrued interest on the maturity date." If they don't pay any interest - what accrued interest ? -- Beardo 04:29, 12 June 2006 (UTC)
They don't pay interest, but they accrue value toward their principal amount. Any time prior to redemption, you can refer to the amount that has accrued thus far as 'accrued interest', or 'accretion value'. It's also not really industry standard to call the final date the 'maturity date'. It's usually called the 'redemption date'. I think referring to the maturity date in the article is an attempt to avoid confusing readers with too much dissimilar jargon, and it's not technically incorrect. I'm changing the article to say "The bond holder receives the full principal amount as well as value that has accrued on the redemption date." If you prefer a different phrasing, please have at it. Tristanreid 23:47, 12 June 2006 (UTC)
Redemption/Maturity date are interchangeable tho' "maturity date" is far more widely used. Note that you should never use the phrase "accrued interest" in the context of a zero coupon bond, there are subtle but important (to a bond trader anyway!) differences in considering a zero-coupon as a "zero coupon bond" or as a "single coupon paid at maturity" bond. The theoretical price of a zero-coupon bond is the net present value of it's redemtion amount, there is no such concept of the "value that has accrued".
[edit] Convertible bonds
Why aren't convertible bonds mentioned in this article?
I added convertible and exchangeable bonds -- Argyn
[edit] Auction process and secondary market
I don't see the description of auction process at both Treasury and the secondary markets. Technical details of bond trading are not covered yet. --Argyn
In the see also section the links to Baby Bonds, Bond Market in India, and Senior Bonds all take you to "article not found" pages in wikipedia. I would delete them myself but am new and not comfortable doing so. Can someone else either delete or fix them? Thanks!
[edit] Removed discussion of US Treasury series bond issue dates
This information was pretty tangential to the general topic of bonds, and was also taken verbatim from the Treasury bonds page. It also upset the flow of the paragraph into which it had been inserted. For these reasons, I removed it. Someone may be interested to note that the intro is still a little garbled - especially in its multiple definitions of the term "bill".
Joachim Heck 20:34, 7 November 2006 (UTC)
[edit] Possible error in second paragraph
It says:
The issuer is equivalent to the borrower, the bond holder to the lender, and the coupon to the interest.
But the way I read it, the bond holder would be the borrower, and the issuer would be the lender. Isn't that right? Or have I misunderstood? Please delete this whole section when resolved either way. —Preceding unsigned comment added by Oidara (talk • contribs) 11:09, 19 December 2007 (UTC)
- I believe it's clear. With the commas the way they are, it shows that
- issuer == borrower
- bond holder == lender
- coupon == interest
- and this is correct. When a company sells (issues) a bond, it is selling a promise to repay the amount borrowed along with interest. The company receives money from an investor, who now is a bond holder (and who "lent" money to the issuer). Does anyone else think this point should be clarified in the article? -FrankTobia (talk) 14:53, 19 December 2007 (UTC)
