Download An introduction to bond markets by Moorad Choudhry PDF

By Moorad Choudhry

This publication describes and defines bonds in the context of the capital markets and the different sorts of bonds which are traded. It incorporates a certain examine the analytical ideas utilized in the marketplace via investors and fund managers. This new version will replace the part on swaps and chance administration, replace all routines and examples, upload a brand new part on credits derivatives, upload a piece on based finance securities & upload a bit on buying and selling. Contents additionally contain: Bond yield size, rate of interest threat, the united kingdom gilt marketplace and company debt markets, chance administration, Off-balance sheet tools, together with swaps and suggestions, and in another country and rising markets.

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Specifically, the price moves in the opposite direction from the yield. This is because a bond’s price is the net present value of its cash flows; if the discount rate – that is, the yield required by investors – increases, the present values of the cash flows decrease. In the same way if the required yield decreases, the price of the bond rises. 3, which plots the yield against the corresponding price to form a convex curve. 3 The price/yield relationship. 4 23 Summary of the price/yield relationship.

Another problem with YTM is that it discounts a bond’s coupons at the yield specific to that bond. It thus cannot serve as an accurate basis for comparing bonds. Consider a 2-year and a 5-year bond. These securities will invariably have different YTMs. Accordingly, the coupon cash flows they generate in 2 years time will be discounted at different rates (assuming the yield curve is not flat). This is clearly not correct. The present value calculated today of a cash flow occurring in 2 years’ time should be the same whether that cash flow is generated by a short- or a long-dated bond.

In emerging markets a debt market usually develops ahead of an equity market, led by trading in government bills and bonds. This reflects the fact that, as in developed economies, government debt is usually the largest in the domestic market and the highest quality paper available. We look first at some important features of bonds. This is followed by a detailed look at pricing and yield. We conclude this introductory chapter with some spreadsheet illustrations. DESCRIPTION Bonds are identified by just one or two key features.

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