Interest of Bonds?

[sjfan]

Oh boy - wait until someone explain to you the concept of "Duration". You are going to have a heart attack.

If long term interest rate (say, the US 30Y yield) rises by 1%, your fixed coupon 2038 bond will loss approximately 16%. Have fun with that.

Please get out of fixed income. You are embarrassing yourself.

Quote from failed_trad3r:

poison put is more interesting I already understand everything else... I just have to sell my bond and buy one with higher maturity date like this one
http://cxa.marketwatch.com/finra/BondCenter/BondDetail.aspx?ID=MDIyMDlTQUUz

it expires in 2038 so should be safe!

 

[intradaybill]

Quote from sjfan:

Oh boy - wait until someone explain to you the concept of "Duration". You are going to have a heart attack.

If long term interest rate (say, the US 30Y yield) rises by 1%, your fixed coupon 2038 bond will loss approximately 16%. Have fun with that.

Please get out of fixed income. You are embarrassing yourself.

My calculation shows approximatelly 12%.

Convexity is more inteersting. Anyhow, bonds do not lose any value if kept to maturity and assuming there is no default.

 

[sjfan]

You are probably right; I didn't bother computing convexity - just a simple DV01 loading. Anyway, I don't agree with "bonds do not lose any value if kept to maturity". You mean that it doesn't lose any future-value. It could incur a real and quantifiable opportunity cost.

Quote from intradaybill:

My calculation shows approximatelly 12%.

Convexity is more inteersting. Anyhow, bonds do not lose any value if kept to maturity and assuming there is no default.

 

[intradaybill]

Quote from sjfan:

You are probably right; I didn't bother computing convexity - just a simple DV01 loading. Anyway, I don't agree with "bonds do not lose any value if kept to maturity". You mean that it doesn't lose any future-value. It could incur a real and quantifiable opportunity cost.

Yep, that's what I meant. Opportunity cost is something different. But do not forget that if rates go up, you can re-invest the coupons at the higher rate. So your effective yield goes up.

 

[sjfan]

Maybe we are just arguing over semantics, but in bond world opportunity cost is not really different. It's essentially the reason why you have price changes.

Coupon reinvestment may ease the pain a little - but if you'll only get to reinvest at a much higher coupon when you are already taking a big px hit. The px hit will outweigh the higher effective yield.

Quote from intradaybill:

Yep, that's what I meant. Opportunity cost is something different. But do not forget that if rates go up, you can re-invest the coupons at the higher rate. So your effective yield goes up.

 

[AlexLutiera]

that would be a very though to answer. But i guess, you will be able to have the interest of your bond in the end of this month. or the end of the month of February.

 

[sjfan]

Why in the world would it be tough to answer?

Quote from AlexLutiera:

that would be a very though to answer. But i guess, you will be able to have the interest of your bond in the end of this month. or the end of the month of February.

 

[AlexLutiera]

Quote from sjfan:

Why in the world would it be tough to answer?

What I mean by that was, everything depends upon the situation. That's why, we should consider a lot of situation regarding that first topic. lol.

Interests are paid monthly or quarterly. If that would really be a "scam",as referred on the first post, that would be of a different situation. LOL.

 

[sjfan]

What in the world are you talking about? depend on what situation? How a bond pays coupon (how much, when, fixed or floating, etc) are all spelled out in either the offering document or the pricing circular. There's no uncertainty attached.

Quote from AlexLutiera:

What I mean by that was, everything depends upon the situation. That's why, we should consider a lot of situation regarding that first topic. lol.

Interests are paid monthly or quarterly. If that would really be a "scam",as referred on the first post, that would be of a different situation. LOL.

 

[failed_trad3r]

Quote from sjfan:

What in the world are you talking about? depend on what situation? How a bond pays coupon (how much, when, fixed or floating, etc) are all spelled out in either the offering document or the pricing circular. There's no uncertainty attached.

I got 50 bucks interest in february! I'm raking in the cash