Chapter 7 Bond Markets: provide a background on bonds, describe the different types of bonds and their characteristics, explain how bond markets have become globally integrated, describe other types of long-term debt securities. | 1 1 ■ provide a background on bonds ■ describe the different types of bonds and their characteristics ■ explain how bond markets have become globally integrated ■ describe other types of long-term debt securities 7 Bond Markets Chapter Objectives 2 2 Background on Bonds Long-term debt securities issued by government agencies or corporations. The issuer is obligated to pay interest (or coupon) payments periodically (such as annually or semiannually) and the par value (principal) at maturity. Bonds are often classified according to the type of issuer: treasury bonds, federal agency bonds, municipal bonds, and corporate bonds. Most bonds have maturities of between 10 and 30 years. Can be issued as bearer bonds or registered bonds. Bonds are issued in the primary market through a telecommunications network. Exhibit How Bond Markets Facilitate the Flow of Funds Exhibit Participation of Financial Institutions in Bond Markets Bond Yields Yield from the Issuer’s Perspective Commonly measured by the yield to maturity. The yield to maturity is the annualized discount rate that equates the future coupon and principal payments to the initial proceeds received from the bond offering. Yield from the Investor’s Perspective Holding period return is used by bond investors who do not hold the bond until maturity. Yield consists of two components: a set of coupon payments and the difference between the par value that the issuer must pay to investors at maturity and the price it received when selling the bonds. Treasury and Federal Agency Bonds The . Treasury commonly issues Treasury notes and Treasury bonds to finance federal government expenditures. The minimum denomination for Treasury notes and bonds is now $100. Note maturities are less than 10 years whereas bond maturities are 10 years or more. Receive semiannual interest payments from the Treasury. Interest is taxed by the federal government as ordinary income, but it is exempt from any state and local taxes. . | 1 1 ■ provide a background on bonds ■ describe the different types of bonds and their characteristics ■ explain how bond markets have become globally integrated ■ describe other types of long-term debt securities 7 Bond Markets Chapter Objectives 2 2 Background on Bonds Long-term debt securities issued by government agencies or corporations. The issuer is obligated to pay interest (or coupon) payments periodically (such as annually or semiannually) and the par value (principal) at maturity. Bonds are often classified according to the type of issuer: treasury bonds, federal agency bonds, municipal bonds, and corporate bonds. Most bonds have maturities of between 10 and 30 years. Can be issued as bearer bonds or registered bonds. Bonds are issued in the primary market through a telecommunications network. Exhibit How Bond Markets Facilitate the Flow of Funds Exhibit Participation of Financial Institutions in Bond Markets Bond Yields Yield from the Issuer’s Perspective Commonly .
