1、Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-0 8 The International Capital Market -The Bond Market (Chapter 12) Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-1 Essential Readings The Whole Chapter 12 Irwin/McG
2、raw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-2 Main Contents lThe International Bond Market lThe US Subprime Mortgage Crisis Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-3 The International Bond Market lBond is a long
3、 term contract in which the bondholders lend money to a company. In return the company promises to pay the bondholders a series of interest, known as the coupon payments, until the bond matures. Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-4 Bond lCharat
4、eristics nBond can be regarded as IOU(I owe you) with pages of legal clauses. nAt maturity the bondholder receives a specified principal sum called the par value or face value. This is usually 100 in the UK and $1000 in the USA. nThe time of maturity is generally between 7 to 30 years. Irwin/McGraw-
5、Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-5 The Worlds Bond Market lForeign Bonds lEurobond Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-6 Foreign Bond lForeign Bond is the bond denominated in the currency of the count
6、ry where it is issued when the issuer is a non-resident. nE.g. A German company issuing dollar bonds to the US investors. nE.g. Yankee, Bulldog, Samurai. Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7 Eurobonds lEurobonds are bonds sold outside the juris
7、diction of the country of the currency in which the bond is denominated. nA Dutch borrower issuing Dollar denominated bonds to UK, or Switzerland, or even Netherlands. lMost of the Eurobonds are of fixed rate, 25% are floated rate. lThe currencies denominated most often are USD, GBP, Deutsche Mark a
8、nd Japanese Yen. Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-8 National Security Registrations lYankee bonds must meet the requirements of the SEC, just like U.S. domestic bonds. lMany borrowers find this level of regulation burdensome and prefer to rai
9、se U.S. dollars in the Eurobond market. lEurobonds sold in the primary market in the United States may not be sold to U.S. citizens. lOf course, a U.S. citizen could buy a Eurobond on the secondary market. Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-9 W
10、ithholding Taxes lPrior to 1984, the United States required a 30 percent withholding tax on interest paid to nonresidents who held U.S. government or U.S. corporate bonds. lThe repeal of this tax led to a substantial shift in the relative yields on U.S. government and Eurodollar bonds. lThis lends c
11、redence to the notion that market participants react to tax code changes. Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-10 Security Regulations That Ease Bond Issuance lShelf Registration (SEC Rule 415) nAllows the issuer to preregister a securities issue
12、, and then offer the securities when the financing is actually needed. lSEC Rule 144A nAllows qualified institutional investors to trade private placements. nThese issues do not have to meet the strict information disclosure requirements of publicly traded issues. Irwin/McGraw-Hill Copyright 2001 by
13、 The McGraw-Hill Companies, Inc. All rights reserved. 7-11 Bearer Bonds and Registered Bonds lBearer Bonds are bonds with no registered owner. nWith bearer bonds, possession is the evidence of ownership. lRegistered Bonds: the owners name is registered with the issuer. nWith registered bonds, the ow
14、ners name is on the bond and it is recorded by the issuer. lU.S. security laws require Yankee bonds sold to U.S. citizens to be registered. Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-12 Global Bonds lA global bond is a very large international bond off
15、ering by a single borrower that is simultaneously sold in North America, Europe and Asia. lMostly institutional investors are the purchasers so far. Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-13 Types of Instruments lStraight Fixed Rate Debt lFloating-
16、Rate Notes lEquity-Related Bonds lZero Coupon Bonds lDual-Currency Bonds lComposite Currency Bonds Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-14 Straight Fixed Rate Debt lThese are “plain vanilla” bonds with a specified coupon rate and maturity and no
17、options attached. lSince most Eurobonds are bearer bonds, coupon dates tend to be annual rather than semi-annual. lThe vast majority of new international bond offerings are straight fixed-rate issues. Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-15 Float
18、ing-Rate Notes lJust like an adjustable rate mortgage. lCommon reference rates are 3-month and 6-month U.S. dollar LIBOR lSince FRN reset every 6 or 12 months, the premium or discount is usually quite smallas long as there is no change in the default risk. Irwin/McGraw-Hill Copyright 2001 by The McG
19、raw-Hill Companies, Inc. All rights reserved. 7-16 Question lYour firm has just issued five-year floating-rate notes indexed to six-month U.S. dollar Libor plus percent. What is the amount of the first coupon payment your firm will pay U.S. $1,000 of the face value, if six-month Libor is currently 7
20、.2%? Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-17 Solution l0.5 x (.072 + .0025) x $1,000 = $37.25. Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-18 Equity-Related Bonds lConvertibles nConvertible bonds all
21、ow the holder to surrender his bond in exchange for a specified number of shares in the firm of the issuer. lBonds with equity warrants nThese bonds allow the holder to keep his bond but still buy a specified number of shares in the firm of the issuer at a specified price. Irwin/McGraw-Hill Copyrigh
22、t 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-19 Convertible Bonds lA convertible bond issue allows the investor to exchange the bond for a predetermined number of equity shares of the issuer. nThe floor-value of a convertible bond is its straight fixed-rate bond value. nConvertib
23、les usually sell at a premium above the larger of their straight debt value and their conversion value. lInvestors are usually willing to accept a lower coupon rate of interest than the comparable straight fixed coupon bond rate because they find the conversion feature attractive. Irwin/McGraw-Hill
24、Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-20 Bonds with Equity Warrants lThese bonds allow the holder to keep the bond but still buy a specified number of shares in the firm of the issuer at a specified price. nThey can be viewed as straight fixed-rate bonds with the a
25、ddition of a call option (or warrant) feature. nThe warrant entitles the bondholder to purchase a certain number of equity shares in the issuer at a pre- stated cash price over a predetermined period of time. lWith a convertible bond, you surrender the bond to get the shares. With equity warrant bon
26、ds you pay cash and keep the bond. Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-21 Zero Coupon Bonds lZeros are sold at a large discount from face value because there is no cash flow until maturity. lIn the U.S., investors in zeros owe taxes on the “impu
27、ted income” represented by the increase in present value each year, while in Japan, the gain is a tax-free capital gain. Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-22 Zero Coupon Bonds lZero coupon bonds are sold at a large discount from face value bec
28、ause there is no cash flow until maturity. lIn the U.S., investors in zeros owe taxes on the “imputed income” represented by the increase in present value each year, while in Japan, the gain is a tax-free capital gain. lPricing is very straightforward: PV = PAR (1 + r)T Irwin/McGraw-Hill Copyright 2
29、001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-23 Question lSuppose two kinds of zero-coupon bonds: The DM300,000,000 issue due in 1995 sold at 50 percent of face value, and the DM300,000,000 due in 2000 sold at 33 1/3 percent of face value. Both were issued in 1985. Calculate the imp
30、lied yield to maturity of the two. Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-24 Answer l1.( DM1,000/500)1/10-1=7.177% l2.(DM1,000/333.33)1/15-1=7.599% Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-25 Dual-C
31、urrency Bonds lA straight fixed-rate bond, with interest paid in one currency, and principal in another currency. lJapanese firms have been big issuers with coupons in yen and principal in dollars. lGood option for a MNC financing a foreign subsidiary. Irwin/McGraw-Hill Copyright 2001 by The McGraw-
32、Hill Companies, Inc. All rights reserved. 7-26 Question lConsider 8.5% Swiss Franc/US Dollar dual- currency bonds that pay $666.67 at maturity per SF1,000 of par value. What is the implicit SF/$ exchange rate at maturity? Will the investor be better off or worse off at maturity if the actual SF/$ ex
33、change rate is SF1.35/$1.00? Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-27 Solution l1. The exchange rate is: SF1000/666, =1.5SF/$ l2. If the exchange rate at maturity is SF1.35/$1.00, SF1,000 would buy $740.74 = SF1,000/SF1.35. Thus, the dual currency
34、 bond investor is worse off with $666.67 because the dollar is at a depreciated level in comparison to the implicit exchange rate of SF1.50/$1.00. Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-28 Composite Currency Bonds lDenominated in a currency basket,
35、 like the SDRs or ECUs, instead of a single currency. lOften called currency cocktail bonds. lTypically straight fixed-rate debt. Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-29 Instrument Straight-fixed rateAnnual FixedCurrency of issue Floating rate no
36、te Every 3 to 6 months VariableCurrency of issue Convertible bondAnnual FixedCurrency of issue or conversion to equity shares Straight fixed-rate withAnnual FixedCurrency of issue equity warrantsplus conversion to equity shares Zero coupon bondNone ZeroCurrency of issue Dual currency bondAnnual Fixe
37、dDual currency Frequency of Payment Size of Coupon Payoff at Maturity Characteristics of International Bond Market Instruments Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-30 Currency Distribution of International Bond Amounts Outstanding (As of Year-End
38、 2009 in U.S. $Billions) Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-31 Distribution of International Bond Offerings (As of Year-End 2009 in U.S. $Billions) Source: Derived from International Banking and Financial Market Developments, Bank for Internati
39、onal Settlements, Table 13B, p. A91, June 2007 and June 2009, and p. A109, June 2010; Table 15B, p. A95, June 2007 and June 2009; and p. A113, June 2010. Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-32 International Bond Market Credit Ratings lFitch IBCA
40、, Moodys and Standard no other commission is charged. Eurobond Practices: Secondary Market Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-40 Valuing Bonds lBased on whether the bond is with fixed redemption date, the bond may be divided into: nRedeemable b
41、ond nIrredeemable bond Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-41 Valuing Bonds lA bond is priced according to general market interest rates for the risk class and maturity: lIrredeemable: Pd = I Kd Redeemable: Pd = i1 + i2 + i3 + Rn l (1+kd) (1+kd)
42、2 (1+Kd)3 (1+kd)n Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-42 Exercise lSuppose an irredeemable bond with an annual coupon of 8%, and the face value is $100. l1. Whats the bonds value if the market interest rate is 10%? l2.Whats the bonds value if th
43、e market interest rate is 6%? Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-43 Solution l1. =8/0.10=80 l2.=8/0.6=133.33 Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-44 Exercise lBlackby plc issued a bond with
44、a par value of 100 in September 1996, redeemable in September 2002 at par. The coupon is 8% payable annually in September. The facts available from this are: nThe bond might have a par value of 100 but this may not be what the investors will pay for it. nThe annual cash payment will be 8(8% of par)
45、nIn Sept.2002, 100 will be handed over to the bondholder. lWhat is the price investors will pay for this bond at the time of issue if the market rate of interest for a security in this risk class is 7%? Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-45 Cle
46、aring Procedures lEurobond transactions in the secondary market require a system for transferring ownership and payment from one party to another. lTwo major clearing systems, Euroclear and Clearstream International, handle most Eurobond trades. nEuroclear is based in Brussels and is operated by Eur
47、oclear Bank. nClearstream is located in Luxembourg. Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-46 Clearing Procedures lBoth clearing systems operate in a similar manner. nEach clearing system has a group of depository banks that physically store bond c
48、ertificates. nMembers of either system hold cash and bond accounts. When a transaction is conducted, electronic book entries are made that transfer book ownership of the bond certificates from the seller to the buyer and transfer funds from the purchasers cash account to the sellers. lPhysical trans
49、fer of the bonds seldom takes place. Irwin/McGraw-Hill Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 7-47 Other Functions of the Clearing System lEuroclear and Clearstream perform other functions associated with the efficient operation of the Eurobond market. n(1) The cleari
50、ng systems will finance up to 90 percent of the inventory that a Eurobond market maker has deposited within the system. n(2) The clearing systems will assist in the distribution of a new bond issue. The clearing systems will take physical possession of the newly printed bond certificates in the depo
