Chapter 4 Bonds Flashcards
Put simply, what is a bond?
A bond is a loan, commonly also known as a loan stock.
What is the ‘coupon’ on a bond
The nominal interest rate that is payable.
What is the ‘nominal’ on a bond
The amount of stock purchased / also known as the par or face value.
What is the redemption date on a bond
The year which the stock will be repaid, repaid at the same time as the final interest payment.
What is the convention for quoting in the bonds market.
That prices are quoted per £100 nominal of stock. E.g. £10,070.00 would be quoted at £100.70
What are the two-types of UK Government bonds.
Conventional bonds and index-linked bonds.
Who issues UK Gov’t Bonds
The debt management office (DMO)
What are UK Gov’t Bonds known as?
Gilts or Gilt-edged stock.
What is a Conventional Govt Bond?
Gov’t bonds that carry a fixed coupon and a single repayment date.
What is an Index-Linked bond?
A bond where the coupon and redemption amounts are increased by inflation over it’s lifetime.
Where are corporate bonds listed / where are they mostly traded?
They are listed on Stock Exchanges / mostly traded Over the Counter.
What is a redemption provision?
When the corporate bond issuer can recall the bond before maturity / disadvantageous to the investor.
What are Medium-Term Notes (MTNs)
Medium-term notes are standard corporate bonds with maturities up to 5 years, but can go up to 30 years due to instruments.
What are the two (UK/US) interest rate benchmarks that relate to Floating-Rate Notes (FRNs)
Sterling Overnight Index Average (SONIA) and Secured Overnight Reference Rate (SOFR)
What are PIBS?
Permanent Interest-Bearing Shares. specific to the UK £ Market, issued by building societies they carry fixe coupons and are irredeemable.
