金融市场学课件bond markets

1Chapter4TheCapitalmarket:Bond2ChapterOutlineReview:TypesofFinancialMarketsBackgroundonbondsTreasuryandfederalagencybondsMunicipalbondsCorporatebondsInstitutionaluseofbondmarketsGlobalizationofbondmarketsDevelopmentandProspectsonChinaBondsMarket3Review:TypesofFinancialMarketsFinancialmarketscanbedistinguishedbythematuritystructureandtradingstructureofitssecuritiesMoneyversuscapitalmarketsTheflowofshort-termfundsisfacilitatedbymoneymarketsTheflowoflong-termfundsisfacilitatedbycapitalmarketsPrimaryversussecondarymarketsPrimarymarketsfacilitatetheissuanceofnewsecuritiese.g.,thesaleofnewcorporatestockornewTreasurysecuritiesSecondarymarketsfacilitatethetradingofexistingsecuritiese.g.,thesaleofexistingstockSecuritiestradedinsecondarymarketsshouldbeliquid4SecuritiesTradedinFinancialMarkets MoneymarketsecuritiesMoneymarketsecuritiesaredebtsecuritieswithamaturityofoneyearorlessCharacteristics:LiquidLowexpectedreturnLowdegreeofrisk5SecuritiesTradedinFinancialMarkets (cont’d)CapitalmarketsecuritiesCapitalmarketsecuritiesarethosewithamaturityofmorethanoneyearBondsandmortgagesStocksCapitalmarketsecuritieshaveahigherexpectedreturnandmoreriskthanmoneymarketsecurities6SecuritiesTradedinFinancialMarkets (cont’d)BondsandmortgagesBondsarelong-termdebtobligationsissuedbycorporationsandgovernmentagenciesMortgagesarelong-termdebtobligationscreatedtofinancethepurchaseofrealestateBondsandmortgagesspecifytheamountandtimingofinterestandprincipalpayments7SecuritiesTradedinFinancialMarkets (cont’d)StocksStocks(equity)arecertificatesrepresentingpartialownershipincorporationsInvestorsmayearnareturnbyreceivingdividendsandcapitalgainsStockshaveahigherexpectedreturnandhigherriskthanlong-termdebtsecurities8SecuritiesTradedinFinancialMarkets (cont’d)DerivativesecuritiesDerivativesecuritiesarefinancialcontractswhosevaluesarederivedfromthevaluesofunderlyingassetsSpeculatingwithderivativesallowinvestorstobenefitfromincreasesordecreasesintheunderlyingassetRiskmanagementwithderivativesgeneratesgainsifthevalueoftheunderlyingsecuritydeclines9BackgroundonBondsBondsrepresentslong-termdebtsecuritiesthatareissuedbygovernmentagenciesorcorporationsInterestpaymentsoccurannuallyorsemiannuallyParvalueisrepaidatmaturityMostbondshavematuritiesbetween10and30yearsBearerbondsrequiretheownertoclipcouponsattachedtothebondsRegisteredbondsrequiretheissuertomaintainrecordsofwhoownsthebondandautomaticallysendcouponpaymentstotheowners10BackgroundonBonds(cont’d)BondyieldsTheissuer’scostoffinancingismeasuredbytheyieldtomaturityTheannualizedyieldthatispaidbytheissueroverthelifeofthebondEquatesthefuturecouponandprincipalpaymentstotheinitialproceedsreceivedDoesnotincludetransactioncostsassociatedwithissuingthebondEarnedbyaninvestorwhoinvestsinabondwhenitisissuedandholdsituntilmaturityTheholdingperiodreturnisusedbyinvestorswhodonotholdabondtomaturity11TreasuryandFederalAgencyBondsTheU.S.TreasuryissuesTreasurynotesorbondstofinancefederalgovernmentexpendituresNotematuritiesareusuallylessthan10yearsBondsmaturitiesare10yearsormoreAnactivesecondarymarketexistsThe30-yearbondwasdiscontinuedinOctober200112TreasuryandFederalAgencyBonds(cont’d)TreasurybondauctionNormallyheldinthemiddleofeachquarterFinancialinstitutionssubmitbidsfortheirownaccountsorforclientsBidscanbecompetitiveorpetitiveCompetitivebidsspecifyapricethebidderiswillingtopayandadollaramountofsecuritiestobepurchasedpetitivebidsspecifyonlyadollaramountofsecuritiestobepurchased13TreasuryandFederalAgencyBonds(cont’d)Treasurybondauction(cont’d)TheSalomonBrothersscandalIna1990bondauction,SalomonBrotherspurchased65percentofthebondsissued(exceedingthe35percentmaximum)SalomonresoldthebondsathigherpricestootherinstitutionsInAugustof1991,theTreasuryDepartmenttemporarilybarredSalomonBrothersfrombiddingonTreasurysecuritiesInMay1992Salomonpaidfinesof$190milliontotheSECandJusticeDepartmentSalomoncreatedareservefundof$100milliontocoverclaimsfromcivillawsuits14TreasuryandFederalAgencyBonds(cont’d)TradingTreasurybondsBonddealersserveasintermediariesinthesecondarymarketandalsotakepositionsinthebonds30primarydealersdominatethetradingProfitfromthebid-askspreadConducttradingwiththeFedduringopenmarketoperationsTypicaldailyvolumeisabout$200billionOnlinetradingTreasuryDirectprogram()15TreasuryandFederalAgencyBonds(cont’d)StrippedTreasurybondsOnesecurityrepresentstheprincipalpaymentandasecondsecurityrepresentstheinterestpaymentsInvestorswhodesirealumpsumpaymentcanchoosethePOpartInvestorsdesiringperiodiccashflowscanselecttheIOpartDegreesofinterestratesensitivityvarySeveralsecuritiesfirmscreatetheirownversionsofstrippedsecuritiesMerrillLynch’sTIGRsTheTreasurycreatedtheSTRIPSprogramin198516TreasuryandFederalAgencyBonds(cont’d)Inflation-indexedTreasurybondsIn1996,theTreasurystartedissuinginflation-indexedbondsthatprovideareturntiedtotheinflationrateThecouponrateislowerthantherateonregularTreasuries,buttheprincipalvalueincreasesbytheamountoftheinflationrateeverysixmonthsInflation-indexedbondsarepopularinhigh-inflationcountriessuchasBrazil17ComputingtheInterestPaymentofanInflation-IndexedBondA10-yearbondhasaparvalueof$1,000andacouponrateof5percent.Duringthefirstsixmonthsafterthebondwasissued,theinflationratewas1.3percent.Byhowmuchdoestheprincipalofthebondincrease?Whatisthecouponpaymentaftersixmonths?18TreasuryandFederalAgencyBonds(cont’d)SavingsbondsIssuedbytheTreasuryHavea30-yearmaturityandnosecondarymarketSeriesEEbondsprovideamarket-basedinterestrateSeriesIbondsprovidearateofinteresttiedtoinflationInterestonsavingsbondsisnotsubjecttostateandlocaltaxesFederalagencybondsGinnieMaeissuesbondsandpurchasesmortgagesthatareinsuredbytheFHAandtheVAFreddieMacissuesbondsandpurchasesconventionalmortgagesFannieMaeissuesbondsandpurchasesresidentialmortgages19MunicipalBondsMunicipalbondscanbeclassifiedaseithergeneralobligationbondsorrevenuebondsGeneralobligationbondsaresupportedbyhemunicipalgovernment’sabilitytotaxRevenuebondsaresupportedbytherevenuesoftheprojectforwhichthebondswereissuedMunicipalbondstypicallypayinterestsemiannually,withminimumdenominationsof$5,000MunicipalbondshaveasecondarymarketMostmunicipalbondscontainacallprovision20MunicipalBonds(cont’d)CreditriskLessthan.5percentofallmunicipalbondsissuedsince1940havedefaultedMoody’s,StandardandPoor’s,andFitchInvestorServiceassignratingstomunicipalbondsSomemunicipalbondsareinsuredagainstdefaultResultsinahighercostfortheinvestor21MunicipalBonds(cont’d)TaxadvantagesInteresteisnormallyexemptfromfederaltaxesInteresteearnedonbondsthatareissuedbyamunicipalitywithinaparticularstateisexemptfromstateetaxesInteresteearnedonbondsissuedbyamunicipalitywithinacityinwhichthelocalgovernmentimposestaxesisnormallyexemptfromthelocaltaxes22CorporateBondsCorporationsissuecorporatebondstoborrowforlong-termperiodsCorporatebondshaveaminimumdenominationof$1,000LargerbondsofferingsareachievedthroughpublicofferingsregisteredwiththeSECSecondarymarketactivityvariesFinancialandnonfinancialinstitutionsaswellasindividualsarecommonpurchasersMostcorporatebondshavematuritiesbetween10and30yearsInterestpaidbycorporationsistax-deductible,whichreducesthecorporatecostoffinancingwithbonds23CorporateBonds(cont’d)CorporatebondyieldsandriskInteresteearnedoncorporaterepresentsordinaryeYieldcurveAffectedbyinterestrateexpectations,aliquiditypremium,andmaturitypreferencesofcorporationsSimilarshapeasthemunicipalbondyieldcurveDefaultrateDependsoneconomicconditionsLessthan1percentinthelate1990sExceeded3percentin200224CorporateBonds(cont’d)Corporatebondyieldsandrisk(cont’d)InvestorassessmentofriskInvestorsmayonlyconsiderpurchasingcorporatebondsafterassessingtheissuingfirm’sfinancialconditionandabilitytocoveritsdebtpaymentsInvestorsmayrelyheavilyonfinancialstatementscreatedbytheissuingfirm,whichmaybemisleading25CorporateBonds(cont’d)BondratingsBondswithhigherratingshaveloweryieldsCorporationsseekinvestment-graderatings,sincecommercialbankswillonlyinvestinbondswiththatstatusRatingagencieswillnotnecessarilydetectanymisleadinginformationcontainedinfinancialstatements26CorporateBonds(cont’d)PrivateplacementofcorporatebondsOften,insurancecompaniesandpensionfundspurchaseprivately-placedbondsBondscanbeplacedwiththehelpofasecuritiesfirmBondsdonothavetoberegisteredwiththeSEC27CorporateBonds(cont’d)Low-andzero-couponbonds:AreissuedatadeepdiscountfromparvalueRequireannualtaxpaymentsalthoughtheinterestwillnotbereceiveduntilmaturityHavetheadvantagetotheissuerofrequiringlowornocashoutflowVariable-ratebonds:AllowinvestorstobenefitfromrisingmarketinterestratesovertimeAllowissuersofbondstobenefitfromdecliningratesovertimeConvertibilityConvertiblebondsallowinvestorstoexchangethebondforastatednumberofsharesofcommonstockInvestorsarewillingtoacceptalowerrateofinterestonconvertiblebonds28CorporateBonds(cont’d)TradingcorporatebondsBondsaretradedthroughbrokers,whocommunicateorderstobonddealersAmarketordertransactionoccursattheprevailingmarketpriceAlimitordertransactionwilloccuronlyifthepricereachesaspecifiedlimitBondslistedontheNYSEaretradedthroughtheautomatedBondSystem(ABS)Onlinetradingispossibleat:

29CorporateBonds(cont’d)CorporatebondquotationsMorethan2,000bondsaretradedontheNYSEwithamarketvalueofmorethan$2trillionCorporatebondpricesarereportedineighthsCorporatebondquotationsnormallyincludethevolumeoftradingandtheyieldtomaturity30CorporateBonds(cont’d)HowcorporatebondsfacilitaterestructuringUsingbondstofinancealeveragedbuyoutAnLBOistypicallyfinancedwithseniordebtandsubordinateddebtLBOactivityincreaseddramaticallyinthelater1980sManyfirmswithexcessivefinancialleverageresultingfromLBOsreissuedstockinthe1990s31CorporateBonds(cont’d)Howcorporatebondsfacilitaterestructuring(cont’d)UsingbondstorevisethecapitalstructureDebtisperceivedtobeacheapersourceofcapitalthanequityaslongasthecorporationcanmeetitsdebtpaymentsSometimes,corporationsissuebondsandusetheproceedsforadebt-for-equityswapCorporationswithanexcessiveamountofdebtcanconductanequity-for-debtswap32InstitutionalUseofBondMarketsAllfinancialinstitutionsparticipateinbondmarketsOnanygivenday,commercialbanks,bondmutualfunds,insurancecompanies,andpensionfundsaredominantparticipantsAfinancialinstitution’sinvestmentdecisionswilloftensimultaneouslyaffectbondmarketandotherfinancialmarketactivity33GlobalizationofBondMarketsBondmarketshaveeincreasinglyintegratedasaresultoffrequentcross-borderinvestmentsinbondsLow-qualitybondsissuedgloballybygovernmentsandlargecorporationsareglobaljunkbondsTheglobaldevelopmentofthebondmarketisprimarilyattributedtobondofferingsbycountrygovernments(sovereignbonds)34GlobalizationofBondMarkets(cont’d)EurobondmarketBondsdenominatedinvariouscurrenciesareplacedintheEurobondmarketDollar-denominatedbearerbondsareavailableintheEurobondmarketUnderwritingsyndicateshelpplaceEurobondissues35Develo