Corporate Bonds

Corporate bonds are the means by which private firms borrow money directly from the public. These bonds are similar in structure to Treasury issues—they typically pay semiannual coupons over their lives and return the face value to the bondholder at maturity. They differ most importantly from Treasury bonds in degree of risk. Default risk is a real t

CHAPTER 2 Markets and Instruments 41

Figure 2.8 Corporate bond listings.

NEW YORK EXCHANGE BONDS

Quotations as of 4 p.m. Eastern Time Monday, July 31, 2000

Volume $7,014,000

Domestic All Issues

SALES SINCE JANUARY 1

(000 omitted) 2000 1999 1998

Domestic All Issues

SALES SINCE JANUARY 1

(000 omitted) 2000 1999 1998

Mon.

Frl.

Mon.

Frl.

Issues Traded

139

130

150

137

Advances

51

56

58

57

Declines

57

47

57

51

Unchanged

31

27

35

29

New highs

3

2

4

2

New lows

1

0

1

0

Dow Jones Bond Averages

Close Chg. %Yld Close Chg. 95.71 -0,23 8.19 100.91 +0.04 104.72 94.96 95.09 90.69 10 Utilities 93.51 -0.01 8.00 98.06 -0.37

109.44 98.31 99.27 95.53 10 Industrials 97.91 -0.45 8.38 103.76 + 0.45

-1999- -2000-Hioh Low High Low 106.B8 96.80 96,51 93.23 20 Bonds

CORPORATION BONDS volume, $6,578,000

Cur

Net

Bonds

Ylct. Vol.

Close

Chg,

AËS CD 8$S

8,7

25

9114

-

1

AMR 9S16

9.0

317

lOOW

Vi

ATT 7Ve02

7.1

30

100

Ys

ATTiVj04

6.9

40

97%

VB

ATT 5^01

6.0

20

94 Va

Vi

ATT 7OT

7.6

13

lOl'/j

Vi

ATT fls09

6.7

2

89

ATT 8Vs22

8.1

130

100

+

W

ATT 8'/s24

8.1

38

100

+

Vi

ATT 8=/s31

8.5

50

101%

+

Vi

Aetna 63/M>3 .

6.6

58

96'/!

+

VA

Alla 5S06cld

Cv

6 165'%!

V'Al

Alla ïrl4

7

82Vs

-

V/B

Cur

Net

Bonds

Yld.

Vol.

Close

Chg.

HewIPfcd zri;

1

83Vs

-

3

Hexœl 7s03

cv

15

102

+

1

Htlton 5s06

cv

39

8m

+

1V4

Hollanr S'AO?

9.3

5

100

4

Hollnor 9V406

9.3

30

99

+

1

InldStl 7.9S07

10.5

5

75'/e

+

Ys

1BM 8itl9

35

109

+

Iii

JCPL6W3

6.5

10

97Vî

+

Va

JCPL7I-Î23

8.1

2

93

+

13/4

v| KCS En 8'/a08f

15

52Vi

Vi

KaufB SlWß

9.4

5

100

KaufB 9IM6

9.8

60

98%i

KerrM 5VÜ0

cv

3

110

3"

KerrM 7Vii4

cv

32

99

Leucadia 8%05

8.6

20

96

Leucadia TW 3

9.0

66

853/i

+

Cur

Net

Bonds

Yld,

Vol.

Close

Cha.

PSVEG 7S24

8.0

20

87

_

Vi

RalsP 8*o22

8.5

10

1011/4

V/e

RellaSt W&3

7.0

3

94

RelGrp 9s00

31.6

50

28 Vi

Vi

RelGrp 9«3

81.3

95

12

V/s

ReynTob 8s0i

8.3

Î9

963'Ai

«/h

RevnTob 73403

8.2

55

93 Va

ReynTob 83/<05

9.7

20

90Î4

ReynTob 9Vj13

11.1

65

83

+

l'A

HcbMyr 63

CV

45

93

SallM zr22

25

IB

+

4"'

SalSB 03»

70

87%

SllicnGr 51404

cv

25

63

+

m

Sizeler 8s03

CV

20

91Vj

StdCmci 07

cv

25

58

+

vi

StoneC 103i02A

10.7

79

IOOV2

StoneC IIV3O4

11.2

51

1021/1

Vi

StoneCn 6W07

CV

26

76 Vi

V/2

TVA IViAZ

7.7

100

94 V2

TVA 6'/i43

7.7

1

89

Vi

Tenet 6S05

CV

10

83'A

+

m

TmeWar 7.98s04

7.9

1

101

Vi

TmeWar 8.11S06

7.9

5

103%

+

TmeWar 8.18S07

8.0

2

101%

Iii

Tolicp 85/406

8.9

10

98'A

Vi

THiltiO 6>A03

7.9

225

82

+

m

Webb 9W03

10.1

18

961/3

Webb 9s06

10.4

107

86%

Webb 10'/il0

11.1

120

92

+

Vi

Whl Pit 9*603

9,1

25

IWSi

+

FOREIGN BONDS Volume, $436,000

FOREIGN BONDS Volume, $436,000

APP Fn zrl2 CGDIna 8s04f £mpiCA5s04

Irxxi CV04 cv lncoTV4!6 cv NatWestm 7aA09 7.5

SesCnt 12Vî04A 14.6 110

SeaCnt lO'ACO 12.4 100

225 57 66 71 10 31

Source: The Wall Street Journal, August 1, 2000. Reprinted by permission of The Wall Street Journal, © 2000 Dow Jones & Company, Inc. All Rights Reserved Worldwide.

consideration in the purchase of corporate bonds, and Chapter 14 discusses this issue in considerable detail. For now, we distinguish only among secured bonds, which have specific collateral backing them in the event of firm bankruptcy; unsecured bonds, called debentures, which have no collateral; and subordinated debentures, which have a lower-priority claim to the firm's assets in the event of bankruptcy.

Corporate bonds often come with options attached. Callable bonds give the firm the option to repurchase the bond from the holder at a stipulated call price. Convertible bonds give the bondholder the option to convert each bond into a stipulated number of shares of stock. These options are treated in more detail in Chapter 14.

Figure 2.8 is a partial listing of corporate bond prices from The Wall Street Journal. The listings are similar to those for Treasury bonds. The highlighted AT&T bond listed has a coupon rate of 73/4% and a maturity date of 2007. Its current yield, defined as annual coupon income divided by price, is 7.6%. (Note that current yield is a different measure from yield to maturity. The differences are explored in Chapter 14.) A total of 12 bonds traded on this particular day. The closing price of the bond was 101.25% of par, or $1,012.50, which was lower than the previous day's close by /4% of par value.

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