國際投資管理chap7part

1、Chapter 7Global Bond Investing2014-12-167 - 2IntroductionIn this chapter we look at:Global bond market statisticsMajor differences among bond marketsThe international bond marketEmerging markets bonds, Brady bondsBond quotations, conventions and valuationDuration of a bondVarious sources of return a

2、nd risk from an international bond.Various stages of international bond management.Floating rate notes (FRN).7 - 3World Market SizeThe world market capitalization is higher than that of the equity market.Size of world bond market is estimated to be $66 trillion at the start of 2007. Now it is report

3、ed that the size of world bond market is up to 100 trillion by J.P. Morgan Chase & Co.The relative share of each currency market depends not only on new issues and repaid bonds, but also on exchange rate movements.Three bonds groups7 - 47 - 5The Global Bond Market There is still no unified global bo

4、nd market. Instead the global bond market may be classified into three categories:Domestic bond marketIssued by domestic borrower in local currencyForeign bondse.g. Yankee, Rembrandt, Matador bondsInternational bondsUnderwritten by a multinational syndicate7 - 6The Global Bond MarketDomestic bonds:I

5、ssued locally by a domestic borrower and are usually denominated in the local currencyUsually make up the bulk of the national bond marketIssuers include government, semi-government and corporate agencies7 - 7The Global Bond MarketForeign bond marketIssued on a local market by a foreign borrower and

6、 are usually denominated in the local currency.Foreign bond issues and trading are under the supervision of local market authorities.Foreign bonds include:Yankee bonds (in the U.S)Rembrandt bonds (in the Netherlands)Samurai bonds (in Japan)Matador bonds (in Spain)Bulldog bonds (in the UK)7 - 8Intern

7、ational bond marketUnderwritten by a multinational syndicate of banks and are placed mainly in countries other than the one in whose currency the bond is denominated.International bonds (Eurobonds) are not traded on a specific national market.However, there are Eurobonds listed on the Luxembourg Sto

8、ck Exchange to nominally satisfy the requirement of obtaining a public quotation at least once a year or quarter.Developed in the 1960s and was early recognized as an efficient, low-cost and innovative market.Avoids most national regulations and constraints and provides sophisticated instruments.The

9、 Global Bond Market7 - 9A note on terminologyIn 1999, all bonds denominated in one of the former currencies of Euroland were translated into euros.This new denomination could create confusion between “Eurobonds” and “bonds issued in euros”.So to avoid thisFrom this point on, the term “international

10、bond” is used in lieu of “Eurobond”.7 - 10The International Bond Market The major types of instruments are:Straight bonds with fixed couponsFloating-rate notes (FRNs) with a coupon indexed on a short-term interest rateBonds with some equity feature (convertibles).The euro is the major currency of is

11、suance, followed by the dollar.7 - 11Exhibit 7.1: Market Capitalization of Domestic Bond Markets Total $48.7 trillion7 - 12Exhibit 7.2: Market Capitalization of International Bonds Total $17.6 trillion7 - 13Bond IndexesLess commonly available than stock indexes.Bond indexes are put to different uses

12、:An index calculated daily allows a quick assessment of the direction and movement of the market.Total return bond indexes are also required for measuring the performance of a bond portfolio in a domestic or multicurrency setting (monthly or quarterly).7 - 14Exhibit 7.3 International Bond Tombstone7

13、 - 15International bond market - CharacteristicsThe underwriting syndicate is made up of banks from numerous countries.Underwriting banks tend to use subsidiaries established in London or a foreign country with a favorable tax situation.Corporate borrowers use a subsidiary incorporated in a country

14、with a favorable tax and regulatory treatment.For fixed-rate Eurobonds, the frequency of coupon payments is usually annual.International bonds are sold in a multistage process.7 - 16International bond marketIssuance ProcessIssuing syndicate:issue is organized by an international bank called a lead m

15、anager.Timetable of New Issue (total time: 5 to 6 weeks):discussion between lead manager and borrower (2 weeks or more).Announcement of international bond issue (1 to 2 weeks of preplacement).offering day with final terms (2 week public placement)Closing day: selling group pays for bondsAfter closin

16、g day, the bonds can be publicly traded.7 - 17Exhibit 7.4: Timetable of a New International Bond Issue7 - 18International Bond MarketIssuance ProcessDealing in international bonds:Eurobond dealers created an around-the-clock market among financial institutions across the world, forming the Internati

17、onal Capital Market Association (ICMA).Eurobond Clearing Bond:A trade is settled in three business days and the transactions are cleared through either Euroclear （歐洲票據(jù)清算系統(tǒng)）or Clearstream （明訊）(formerly Cedel).Euroclear and Clearstream collect a transaction fee for each book entry as well as a custody

18、 fee for holding the security.7 - 19Emerging MarketsSeveral alternatives are available:Domestic bondsVarious restrictions and liquidity problems reduce the amount available to foreign investors. Foreign bondsInternational bondsBrady bondsIn 1990, the Brady plan allowed emerging countries to transfor

19、m nonperforming debt into Brady bonds.7 - 20Emerging Markets - Brady BondsFormulated in 1990, as a solution to the emerging market debt crisis of the 1980s.A Brady plan is a debt-reduction program whereby sovereign debt is repackaged into tradable Brady bonds, generally with collateral.Close to 20 c

20、ountries have issued Brady bonds and the total market capitalization is close to $100 billion.7 - 21Brady Bonds - CharacteristicsThree main types of guarantees can be put in place:principal collateralrolling-interest guaranteevalue recovery rightsTwo major types of Brady bonds have been issued:par b

21、onds (PARS)discount bonds (DISCS)Other types of Brady bonds include:Front-loaded interest reduction bonds (FLIRBs)New-money bonds (NMBs)Past-due interest bonds (PDIs)Quotation, Day count and Frequency of CouponThe general formula for the future value of an investment over many periods can be written

22、 as:FV = C0(1 + r)TWhere C0 is cash flow at date 0,r is the appropriate interest rate, andT is the number of periods over which the cash is invested.7 - 22ExampleSuppose that Jay Ritter invested in the initial public offering of the Modigliani company. Modigliani pays a current dividend of $1.10, wh

23、ich is expected to grow at 40-percent per year for the next five years.What will the dividend be in five years? FV = C0(1 + r)T $5.92 = $1.10(1.40)57 - 23Notice that the dividend in year five, $5.92, is considerably higher than the sum of the original dividend plus five increases of 40-percent on th

24、e original $1.10 dividend:$5.92 $1.10 + 5$1.10.40 = $3.30 This is due to compounding.7 - 24Quotation, Day count and Frequency of CouponCompounding an investment m times a year for T years provides for future value of wealth:For example, if you invest $50 for 3 years at 12% compounded semi-annually,

25、your investment will grow to7 - 25Effective Annual Interest RatesA reasonable question to ask in the above example is what is the effective annual rate of interest on that investment?The Effective Annual Interest Rate (EAR) is the annual rate that would give us the same end-of-investment wealth afte

26、r 3 years:So, investing at 12.36% compounded annually is the same as investing at 12% compounded semiannually.Continuous Compounding The general formula for the future value of an investment compounded continuously over many periods can be written as:FV = C0erTWhere C0 is cash flow at date 0,r is th

27、e stated annual interest rate, T is the number of periods over which the cash is invested, ande is a transcendental number approximately equal to 2.718. ex is a key on your calculator.7 - 29Major Differences Among Bond MarketsBonds are quoted in the form of a clean price net of accrued interest.The

28、full price (or value) of a bond is the sum of its clean price plus accrued interest. Or,P = Q +AIWhere P = full price, Q = quoted price and AI = accrued interestAccrued interest = Coupon (days since last coupon date/days in coupon period).7 - 30Full Price and Clean Price An exampleQuestion: The clea

29、n price of a Eurobond is quoted at Q=96%. The annual coupon is 5 percent, and we are exactly four months from the past coupon payment. What is the full price of the bond? Solution: P = Q + accrued interest = 96% + (120/360) x 5% = 97.67%7 - 31Coupon Frequency and Day CountThe day count convention kn

30、own as “30/360” is commonly used in the USA, Germany, Scandinavia, Switzerland and the Netherlands.In the USA it is used for agency, municipal, corporate and foreign bonds.The day count on US Treasury bonds is actual number of days in a year of 365 or 366 days.The day count convention known as “actu

31、al/actual” assumes a 365 day year.7 - 32Exhibit 7.5: Coupon Characteristics of Major Bond Markets 7 - 33Major Differences Among Bond MarketsYield to Maturity:The yield to maturity (YTM) is the average promised yield over the life of the bond.The convention used to calculate YTM varies across markets.In the U.S, YTM is calculated at a semiannual rate and the result is multiplied by 2 to report an annualized rate.Most Europeans c