Finance · Bonds
how do negative-yield bonds influence investor portfolio strategies?
Negative-yield bonds reshape portfolio strategy by changing the trade-offs between income, capital appreciation, and risk. When sovereign or high-grade corporate bonds trade below zero, investors face a decision between accepting
how do bond ratings affect yields and spreads?
Credit assessments by rating agencies shape market perceptions of a borrower's likelihood of default and therefore the cost of borrowing. Academics such as Aswath Damodaran New York University Stern School
when do callable bonds become advantageous for issuers?
Callable bonds become advantageous for issuers when the value of having the right to retire or refinance debt early outweighs the extra cost investors demand for that option. Issuers most
what drives changes in corporate bond credit spreads?
Corporate bond credit spreads measure the extra yield investors demand to hold corporate debt versus a risk-free benchmark. These spreads matter because they translate directly into corporate borrowing costs, influencing
what is bond convexity and why does it matter?
Bond convexity measures how a bond’s price sensitivity to interest rate changes itself changes as yields move. It builds on duration, which approximates the linear change in price for a
what is reinvestment risk for coupon bond investors?
Coupon-bearing bonds expose investors to reinvestment risk, the possibility that interim cash flows from coupons must be reinvested at lower interest rates than originally expected, reducing the investor’s realized return.
how do bond yields respond to inflation expectations?
Nominal government bond yields move closely with market views about future prices because investors demand compensation for the erosion of purchasing power. The basic relationship is captured by the Fisher
how do rising interest rates affect bond prices?
Rising interest rates lower the market value of existing bonds because newly issued bonds pay higher yields, making older, lower-yielding instruments less attractive. This inverse relationship is a cornerstone of
how do bond yields affect interest rate risk?
Bond yields determine a bond’s market price sensitivity and therefore drive interest rate risk for holders and issuers. At its simplest, when yields rise bond prices fall and vice versa.
how do bond ratings influence borrowing costs?
Bond ratings are independent opinions issued by agencies about a borrower’s ability to repay debt. They affect borrowing costs by shaping investor perceptions of default risk, liquidity, and legal protections.