Talk:Fixed income

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    For the example : if the interest rate is 6%/month (it should be made clear if it's per month or per annum), you get paid 6,000$ worth of coupon/month .. Why would you get 7,000$/month even if you pay a premium if the coupon is still worth 6,000$/month as the issuer only pays coupons based on the nominal value, not on the market price ??

    --first -

    PLEASE don't edit the article like that. That's not how it works. We look at the discussion page for discussion, the link that says 'discuss this page' is enough, without something that says '-->see the discussion page'

    --second -

    The point is that you're not buying the same bond, you're buying one with a different coupon. Yield and coupon are 2 different things. The current 'yield' is how much interest the market is willing to pay, the coupon is the regular payment that gets made. The difference between the two is that yield refers to the coupon payment +/- any difference between what you paid and what you get back in the end. If you only paid $90,000 for a bond that will pay you back $100,000 at maturity + $6,000 coupon payments each --year--, you have received higher than 6% interest on the money you paid. Likewise, if you buy a bond that returns $100,000 and pays $5,000 coupon, the actual yield of the bond is determined by how much you pay for it. So you can figure out what would make it yield 6%, because that is the yield that the example assumes is the going market rate, and you would assume that you would pay less than $100,000, because you are getting less than 6% of that as a coupon. Does that make things more clear? Tristanreid 16:47, 12 October 2005 (UTC)

    I thought of a shorter way to explain that might help: Say you loaned someone $100 at 6% for 10 years. Then a year from now, after collecting your $6 interest for the year, you decide you need that $100, so you go to someone else and say that you'll give them ownership of the $6/year, and the $100 that is coming in 9 years. How much will they pay you for that? If the going rate currently 5%, that stream of $6/year is worth more, if the going rate is 7%, it's worth less. Only if the going rate is exactly 6% would they give you exactly $100 to buy that loan. Tristanreid 16:09, 17 October 2005 (UTC)

    Sorry for the first point ..

    Your first paragraph was very clear .. it's the example in the article that misled me !!

    Just a last point : how is determined the going rate for some maturity (let's say 10 years) ? You say it's a market rate but how exactly ? What is the impact of the issuance of new goverment bonds say ?

    No prob.

    Interesting question, actually. The market rate is determined by supply and demand. When new govt bonds are issued, there is an auction, in which buyers bid by naming the lowest yield that they will accept. It's a blind auction, so you don't know what other bidders are bidding. The Treasury is trying to raise a certain amount of money, say $1 bln. The auction deadline occurs, then the Treasury takes all the bids, and starts with the lowest yield, and accepts bids up until the full amount (the $1 bln in this case) is raised. The 'stop out yield' is the yield of the last bid, the highest yield accepted in order to complete the offering. It is given to all bidders, so if you REALLY wanted bonds and were willing to accept whatever the market had to offer, you could just bid a very lower yield and accept however it turned out, but you are taking the risk that other people do the same and you all get a very low yielding security. Ok, so in any case, the Treasury takes that yield and figures out what coupon would make the bond's price the closest possible to par without going over, and announces that coupon rate as the results of the auction. Tristanreid 20:04, 20 October 2005 (UTC)

    Thanks again for all these infos !!

    Ok, so for the Tresaury, let's say the stop out yield is 4.5% a year. They break up the $1 bln into $100, 000 face-value bonds and define the coupon to be paid according to the maturity and the stop out yield. This yield is somehow the yield the market is willing to pay for that maturity .. I think it wouldn't be too far from the yield of (gvt) bonds with the same time left before maturity already on the market.

    Now, when the Federal reserve says 'We raise/lower interest rates' .. it's not so much more a market rate, right ? Which interest rate are they talking about ?

    [edit] Merge and delete??

    This article on fixed income ranges from a definition of living on a fixed income to terminology for individual bonds to a list of bond market risks. The bond page covers all of the content of this page. I suggest a merge and or a delete. If you disagree post by the end of february when I will mark it for deletion. Accesspig 02:08, 14 February 2007 (UTC) I have since read about the wikiproject finance and understand the direction and ultimate purpose of the article. No need to delete the article but an organized page is needed. Accesspig 18:01, 21 February 2007 (UTC)

    [edit] Fixed income categories

    Note that the order of categories is:

    • Finance
    • Financial markets
    • Fixed income market
    • Fixed income analysis
    • Fixed income securities
    • Bonds
    • Mortgage-backed security

    Finnancier 12:13, 3 July 2007 (UTC)