Pricing US Dollar Bonds

Pricing US Dollar Bonds

Buyers and sellers of new bonds need to agree on a price at which to transact. In this series of videos, Nigel describes the new issue process that brings together all the components of pricing a bond, and surrounding conventions which are applied in the various different bond markets. In this first video of the series, Nigel outlines the various components considered when pricing a bond before specifically detailing how to price US Dollar bond.    
Overview

A bond represents a series of cash-flows. Investors buying bonds acquire rights to receive those cash-flows at a series of dates – the interest payments during the life of the bond (the coupons) and return of the money at maturity (redemption). For new bonds, buyers and sellers need to agree a price and a yield (discount rate) to arrive at a present value, or price, at which they can transact. The yield is a component of the risk-free rate plus a risk premium (a credit spread). The choice of benchmark hinges on the currency of issue and the conventions that apply to bonds issued in that currency.

Key learning objectives:

  • How is a bond yield reflected in bond price?

  • What convention is used in the US dollar bond market for coupon payments?

  • How is a bond’s yield to maturity calculated in the US?

  • What is the coupon rounding convention?

  • What is the day-count convention for US dollars and what is this used for?

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Summary
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Expert
Nigel Owen

Nigel Owen

Nigel spent nearly 20 years in debt capital markets. During this time, he worked for The Royal Bank of Scotland, Royal Bank of Canada, and National Australia Bank. Nigel has moved across various teams including treasury, private placement, origination, and syndicate. He currently works for the National Australia Bank to run the new issuance desk in Europe.

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