INVESTMENTS 投资学 （博迪BODIE, KANE, MARCUS）Chap014 Bond Prices and Yields.ppt

CHAPTER 14 Bond Prices and Yields Credit Default Swaps A credit default swap (CDS) acts like an insurance policy on the default risk of a corporate bond or loan. CDS buyer pays annual premiums. CDS issuer agrees to buy the bond in a default or pay the difference between par and market values to the CDS buyer. Credit Default Swaps Institutional bondholders, e.g. banks, used CDS to enhance creditworthiness of their loan portfolios, to manufacture AAA debt. CDS can also be used to speculate that bond prices will fall. This means there can be more CDS outstanding than there are bonds to insure! Figure 14.12 Prices of Credit Default Swaps Credit Risk and Collateralized Debt Obligations (CDOs) Major mechanism to reallocate credit risk in the fixed-income markets Structured Investment Vehicle (SIV) often used to create the CDO Loans are pooled together and split into tranches with different levels of default risk. Mortgage-backed CDOs were an investment disaster in 2007 Figure 14.13 Collateralized Debt Obligations INVESTMENTS | BODIE, KANE, MARCUS INVESTMENTS | BODIE, KANE, MARCUS Copyright ? 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Bonds are debt. Issuers are borrowers and holders are creditors. The indenture is the contract between the issuer and the bondholder. The indenture gives the coupon rate, maturity date, and par value. Bond Characteristics Face or par value is typically $1000; this is the principal repaid at maturity. The coupon rate determines the interest payment. Interest is usually paid semiannually. The coupon rate can be zero. Interest payments are called “coupon payments”. Bond Characteristics U.S. Treasury Bonds Bonds and notes may be purchased directly from the Treasury. Denomination can be as small as $100, but $1,000 is more common. Bid price of 100:08 means 100 8/32 or $1002.50 Note maturity is 1-10 years Bond maturity is 10-30 years Corporate Bonds Callable bonds can be repurchased before the maturity d