Interest of Bonds?

Discussion in 'Financial Futures' started by failed_trad3r, Jan 13, 2011.

  1. sjfan

    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.

     
    #31     Jan 16, 2011
  2. 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.
     
    #32     Jan 20, 2011
  3. sjfan

    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.

     
    #33     Jan 20, 2011
  4. 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.
     
    #34     Jan 20, 2011
  5. sjfan

    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.

     
    #35     Jan 20, 2011
  6. 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.
     
    #36     Mar 1, 2011
  7. sjfan

    sjfan

    Why in the world would it be tough to answer?

     
    #37     Mar 2, 2011
  8. 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.
     
    #38     Mar 6, 2011
  9. sjfan

    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.

     
    #39     Mar 6, 2011
  10. I got 50 bucks interest in february! I'm raking in the cash :D
     
    #40     Mar 8, 2011