Fixed Income Flashcards
A series of interest payments in fixed amounts and to repay the principal amount at maturity, is more commonly known as…?
A bond
What is the relationship between bond yields and underlying prices?
They have an inverse relationship
What are the five specific features of a bond?
Currency in which payments will be made. Coupon rate and frequency. The par value (principal value to be repaid). The maturity date of the bond. The issuer of the bond.
Who typically issue bonds?
Corporations Sovereign national governments Non-sovereign governments Quasi-government entities Supranational entities
What is the difference between the maturity date and the term/tenor of a bond?
Maturity date of a bond is the date on which the principal is to be repaid
Term to maturity or tenor of a bond: time remaining until maturity
Principal amount that will be repaid at maturity, is called the…
Par value
Bonds with no maturity date. Require perpetual interest repayments but no principal payment, are known as…?
Perpetual bonds
What is the difference between a money market and a capital market security?
Money market securities: Bonds with initial maturities of < 1 year
Capital market securities: Bonds with initial maturities of > 1 year
A bond that makes coupon interest payments in one currency and the principal repayment at maturity in another currency, is called a…?
Dual currency bond
A bond that gives bondholders a choice of which of two currencies they would like to receive their payments in, is called a…?
Currency option bond
What is a bond that is trading at a premium?
A bond that is selling for more than its par value is said to be trading at a premium to par
A bond whose periodic payments are all equal is said to have what sort of structure?
Amortising structure
How do fixed income securities define short term, medium term and long term?
Short term = < 5 years
Medium term = 5-12 years
Long term = > 12 years
What is a company that exhibits a “top-heavy” debt structure?
Most of the companies debt is made up of secured bank debt
The legal contract agreed between the bondholder and the issuer, is called a…?
Bond indenture
What is a negative covenant?
Prohibitions on the borrower
What is an affirmative covenant?
Actions the borrower promises to perform
What are some examples of affirmative covenants?
make timely interest and principal payments to bondholders,
to insure and maintain assets, and
to comply with applicable laws and regulations.
What is the difference between domestic and foreign bonds?
Domestic bonds: Bonds issued by a firm domiciled in country A and also traded in that country A’s currency
Foreign bonds: Bonds issued by a firm incorporated in a foreign country that trade on the national bond market of another country in that country’s currency
A bond market that contains both domestic and foreign bonds, is known as what sort of market?
A national bond market
What are yankee bonds, eurobonds and global bonds?
Yankee bonds: bonds issued by non-US entities that trade in the US and are denominated in US dollars
Eurobonds are issued outside the jurisdiction of any one country and denominated in a currency different from the currency of the countries in which they are sold
Global Bonds: Eurobonds that also trade in a domestic market
What is the difference between unsecured and secured bonds?
Unsecured Bonds: Holder has a claim to all of the issuers total assets
Secured Bonds: Holder has a claim to specific assets the issuer has pledged as collateral
Why does a company form an SPV?
A parent company creates an SPV to isolate or securitise assets in a separate company that is often kept off the balance sheet
What are covered bonds?
Covered bonds Similar to ABS’ but remain on the balance sheet of the issuing corporation (i.e., no SPE is created)