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Is it true that only risk associated with owning a bond is that the issuer will not make all the payments?
The FSA has warned of the risks associated with increasing retail access to the bond markets.
In a speech about the regulatory challenges and developments in the bond markets at the Euromoney bond investors congress in London, FSA managing director of risk Sally Dewar commented on the launch of the London Stock Exchange's new electronic order book trading platform for corporate and UK government bonds in response to investor demand.
She said: "While we see this as a positive development, with the potential to bring benefits to both firms and consumers, there are also risks associated with increasing retail access. For example, authorised firms will need to fully explain to their retail clients the potential risks associated with buying corporate bonds."
So what are the risks?
- Default Risk. The risk of the bond's issuer not meeting the schedule of cash flows on a full and timely basis.
- Credit Spread Risk. The risk that the credit spread of a bond (extra yield to compensate investors for taking default risk), which is inherent in the fixed coupon, becomes insufficient compensation for default risk that has later deteriorated. As the coupon is fixed the only way the credit spread can readjust to new circumstances is by the market price of the bond falling and the yield rising to such a level that an appropriate credit spread is offered.
- Interest Rate Risk. The level of Yields generally in a bond market, as expressed by Government Bond Yields, may change and thus bring about changes in the market value of Fixed-Coupon bonds so that their Yield to Maturity adjusts to newly appropriate levels.
- Liquidity Risk. There may not be a continuous secondary market for a bond, thus leaving an investor with difficulty in selling at, or even near to, a fair price.
- Supply Risk. Heavy issuance of new bonds similar to the one held may depress their prices.
- Inflation Risk. Inflation reduces the real value of future fixed cash flows. An anticipation of inflation, or higher inflation, may depress prices immediately.
- Tax Change Risk. Unanticipated changes in taxation may adversely impact the value of a bond to investors and consequently its immediate market value.
http://www.davidandgoliathworld.com/2010/02/what-are-the-risks-in-bonds/
What else can I help you with?
What are the features and benefits of a continuously-callable bond?
A continuously-callable bond gives the issuer the option to redeem the bond at any time, providing flexibility. This can benefit the issuer by allowing them to refinance at lower rates or adjust their debt levels. However, it can be a disadvantage for investors as they may not receive the full interest payments if the bond is called early.
What are the terms and conditions of a continuously callable bond?
A continuously callable bond is a type of bond that can be redeemed by the issuer at any time, usually after a specified initial period. The terms and conditions of a continuously callable bond typically include the issuer's right to call the bond at any time, the call price at which the bond can be redeemed, and any associated call protection provisions for the bondholder.
What is a bond rating?
A bond issuer's probability of defaulting
Who is the issuer of a bond?
what is THAT supposed to mean?
Can you explain what coupon frequency means?
Coupon frequency refers to how often interest payments are made on a bond or other fixed-income security. It indicates the number of times per year that the issuer of the bond will pay interest to the bondholder. For example, a bond with a coupon frequency of semi-annual means that interest payments are made twice a year.
What is bond serving?
Bond serving typically refers to the process of a bond issuer making regular interest and principal payments to bondholders as outlined in the bond agreement. This allows investors to receive their expected returns on the bond investment over time. Bond serving is crucial for maintaining trust between the issuer and investors in the bond market.
What are the features and benefits of a continuously-callable bond?
A continuously-callable bond gives the issuer the option to redeem the bond at any time, providing flexibility. This can benefit the issuer by allowing them to refinance at lower rates or adjust their debt levels. However, it can be a disadvantage for investors as they may not receive the full interest payments if the bond is called early.
What are the terms and conditions of a continuously callable bond?
A continuously callable bond is a type of bond that can be redeemed by the issuer at any time, usually after a specified initial period. The terms and conditions of a continuously callable bond typically include the issuer's right to call the bond at any time, the call price at which the bond can be redeemed, and any associated call protection provisions for the bondholder.
What is the major function of a Bond in commerce?
A bond is an instrument of indebtedness of the bond issuer to the holders. The issuer owes the holders a debt and pays them interest.
What is the difference between a callable bond and a retractable bond?
A callable bond is where the issuer has the ability to redeem the bond prior to maturity. A callable bond is where the bond hold has the ability to force the issuer to redeem the bond before maturity. Hope this helps.
What is a bond rating?
A bond issuer's probability of defaulting
What is bond ratings?
A bond issuer's probability of defaulting
Who is the issuer of a bond?
what is THAT supposed to mean?
What is bond in credit instrument?
A bond is a debt instrument issued by a borrower to investors, who essentially become lenders to the issuer. The issuer agrees to repay the borrowed amount at a specified future date (maturity) and pays periodic interest payments to the bondholders in the meantime. Bonds are used by entities such as governments and corporations to raise capital.
What is the difference between a put option and a mandatory tender on a municipal bond?
A put option is at the discretion of the holder(owner) of the bond to put (sell) the bond back to the issuer for redemption. A mandatory tender is at the discretion of the issuer of the bond to require that the holder sell the bond back to the issuer (usually at par).
When is a bond's per value generally repaid?
A bond's face value is typically repaid to the bondholder at maturity. This represents the principal amount borrowed by the issuer, which is returned to investors along with any final interest payments.
What value of the bond that is paid back at maturity is known as .?
The value of the bond that is paid back at maturity is known as the "face value" or "par value." This is the amount the bond issuer agrees to pay the bondholder at the bond's maturity date, excluding any interest payments received during the bond's life. The face value is typically set at a standard amount, such as $1,000, and serves as the basis for calculating interest payments.
