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Fixed Income > R43 : Issuance , Trading and Funding > Flashcards

R43 : Issuance , Trading and Funding Flashcards

1
Q

List 8 bond characteristics for classifying global bond markets

A
  1. Issuer
  2. Credit Quality
  3. Maturity
  4. Coupon
  5. Currency
  6. Geography
  7. Indexing
  8. Taxable Status
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2
Q

Who are the largest issuers in DEVELOPED MARKETS ?

A
  1. Financial institutions
  2. Government
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3
Q

Who are the largest issuers in EMERGING MARKETS ?

A

Non financial corporations

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4
Q

What are the highest bond ratings which are also considered as INVESTMENT GRADE BONDS

A

For S&P and Fitch :
1. AAA
2. AA
3. A
4. BBB

For Moody’s it is : Aaa through Baa3

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5
Q

What is the rating given to HIGH YIELD, SPECULATIVE or JUNK BONDS ?

A

BB+ or lower
Bal or lower

Some institutions are prohibited to invest in LESS THAN INVESTMENT GRADE RATED bonds.

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6
Q

What do you call securities whose ORIGINAL MATURITY is as follows ?
Case -1) 1 year or less
Case - 2) Greater than 1 year

A

Ans 1) Money market securities
Ans 2) Capital market securities

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7
Q

which bonds are risker ? Emerging market bonds or developed market bonds and have HIGHER YIELD ?

A

Emerging market bonds

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8
Q

Bonds with cash flows determined by INFLATION RATES are referred as ? Who can issue these ?

A

Inflation indexed or inflation linked bonds.

It can be issued by :
1) Government
2) Some corps with HIGH CREDIT QUALITY

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9
Q

Name bonds which are exempted from tax in the US

A

Municipal bonds or Munis.

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10
Q

New rate that will replace LIBOR in the US ?

A
  • Most likely will be SOFR : Secured overnight financing rate.
  • It is based on ACTUAL RATES OF REPURCHASE (repo transactions).
  • REPORTED DAILY by the FEDRAL RESERVE.
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11
Q

Floating rate bonds , the market reference rate (MMR) must match ?

A

The frequency with which the COUPON RATE on the bond resets.

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12
Q

What expertise the investment bank has in public offering ?

A
  1. Determining funding needs
  2. Structuring debt security
  3. Creating bond indenture
  4. Naming Bond trustee
  5. Registering the issue with securities regulators
  6. Assessing demand and pricing the bonds given the market conditions
  7. Selling the bonds
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13
Q

What do you term a debt that is temporary until permanent financing can be secured ?

A

Bridge Financing

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14
Q

Firms use Commercial paper to fund what ?

A

Working capital and temporary source of funds.

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15
Q

What is max maturity for Commercial paper in the US ? Can CP be issued with maturity of one day or 90 days as well ?

A
  • 270 days or less.
    -Yes, it can be issued with 1 day maturity too aka OVERNIGHT PAPER.
  • Because debt securities with maturities of 270 days or less are exempt from SEC registration.
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16
Q

Which commercial paper has maturities as long as 364 days ?

A

Eurocommercial paper (ECP)

17
Q

What is the risk of a company not able to sell new commercial paper to replace maturing paper termed as ?

A

Rollover risk

18
Q

What are the two important circumstances in which a company will face roll over difficulties ?

A
  1. Deterioration in a company’s actual or perceived ability to repay debt at maturity. ( lead to increase in required yield on the paper or lead to less than full subscription on new issue)
  2. Significant systematic financial distress which may FREEZE debt markets so that very little commercial paper can be sold. Eg : 2008 crisis.
19
Q

To get an ACCEPTABLE CREDIT RATING from the rating services on their commercial paper , corporations maintain what ?

A

Back up line of credit AKA LIQUIDITY ENHANNCEMENTS or Backup liquidity lines.

The banks agrees to provide funds when the paper matures if needed. EXCEPT in the case of MATERIAL ADVERSE CHANGE (i.e. when the company’s financial situation has deteriorated significantly)

20
Q

What is an alternative to issue with sinking fund ?

A

Serial bond issue. wherein bonds are issued with SEVERAL MATURITY DATES so that a portion of the issue is redeemed periodically.

21
Q

What is the key difference between issue with sinking fund and serial bond issue ?

A

in serial bond issue , investors know at issuance when specific bonds will be redeemed.

22
Q

A bond issue that does NOT have SERIAL MATURITY STRUCTURE is called as ?

A

Term maturity structure

Fixed Income (1 decks)

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