Corporate bond credit spread

Transcription

1 Corporate bond credit spread Spread : nominal Oct / actuarial Sep 13, 2011 : French OAT October % / % Cofiroute October % / % BBB+ from March 1, 2007 Credit spread evolution : economic sector investors risk aversion uncertainty level Euro Corporate bond spreads of non-financial corporations (basis points, monthly averages) 09/10/2011 Pr. Didier Folus 1

2 Long term US Corporate bond spreads of non-financial corporations (basis points, monthly averages) 09/10/2011 Pr. Didier Folus 2

3 3.2. Corporate bond standard provisions Senior debt : bondholders have the claim of general creditors on all assets of the issuer not pledged to secure other debt. Fixed rate Types of provisions Floating rate Indexed bond Call Subordination Equity-linked Benchmark rate + x %, redemption at par Coupon or nominal is linked to a stock index, commodity price, inflation rate, etc. Issuer can redeem before maturity (at a premium above par) Bondholders have a weaker claim on issuer s assets, standing behind other creditors (higher coupon) Bondholders will or can access the equity side 09/10/2011 Pr. Didier Folus 3

4 Subordinated bond samples (junior debt) Fact sheet Société Générale TSR AXA TSDI Issue date.. October 29, 2004 March 8, 2000 Issue amount EUR EUR Total nb of bonds Issue price % 100 % Nominal value. EUR EUR 25 Coupon rate % annually 7.25 % quarterly Repayment date October 29, 2016 undefined Repayment price.. Par Par Subordination... Yes Yes Provisions. Not applicable Call provision 09/10/2011 Pr. Didier Folus 4

5 Equity-linked bonds Stock redeemable bond : redemption in issuer s stocks. (lower yield-to-maturity than non-convertible bonds) Convertible bonds : holder can convert the bond into shares of the issuer s common stock under defined terms. (lower yield-to-maturity than non-convertible bonds) Exchangeable bond : holder can convert the bond into shares of the issuer s common stock or the common stock of a subsidiary. (lower yield-to-maturity than nonconvertible bonds) 09/10/2011 Pr. Didier Folus 5

6 Air France OCEANE Fact sheet Issue date 22/04/2005 Issue amount... EUR 449,999,989.5 Total number of bonds 21,951,220 Issue price... EUR Nominal value. EUR Coupon rate % Repayment date.. 01/04/2020 Repayment price. par Conversion ratio. 1 to 1 09/10/2011 Pr. Didier Folus 6

7 Source : SIFMA, Feb High yield bonds High risk (default) High return (volatile) European developped market HY bond issuance (sample) Emerging market HY bond issuance (sample) 09/10/2011 Pr. Didier Folus 7

8 3.4. Agency bonds (low risk) Agency = national or federal public body : Student Loan Marketing Association, SLMA or Sallie Mae SNCF, RATP Government-sponsored enterprises : Federal National Mortgage Association, FNMA or Fannie Mae Federal Home Loan Mortgage Corp., FHLMC or Freddie Mac An agency unlikely goes bankrupt (implicit/explicit State guarantee) 09/10/2011 Pr. Didier Folus 8

9 09/10/2011 Pr. Didier Folus 9

10 4. Bond markets features 4.1. Global data on issuance Source : SIFMA, March /10/2011 Pr. Didier Folus 10

11 4.2. Bond trades Turnover on bonds US government securities Source : SIFMA, Feb US corporate bonds Source : AFT, Dec /10/2011 Pr. Didier Folus 11

12 Bond trading places Wholesale markets : Daily 85 bn EUR, min. lot 2.5 M EUR OTC electronic : EuroMTS, TradeWeb, BrokerTec Only for primary dealers Regulated markets : (everybody accessing) Source : WFE, Feb /10/2011 Pr. Didier Folus 12

13 4.3. Bond secundary market rates Benchmark : CMR, TEC 10, TME Yield curve : Separate Trading of Registered Interest and Principal of Securities 09/10/2011 Pr. Didier Folus 13

14 4.4. Bond quotation TESCO PLC 5.50 % notes Trading venue : LSE Transaction price % Accrued coupon days % Quote on 12/31/ % 9 October, 2011 Source : LSE, Pr. Didier Folus 14 January 2, 2011.

15 5. Pricing a corporate fixed-rate security 5.1. Bond price determinants UK Yield Curve From Financial Times January 2, From Natixis Special report, December October, 2011 Pr. Didier Folus 15

16 5.2. Bond theoretical value Pricing date : December 13, 2010 Tesco Plc % 2019 fixed rate bond : maturity. 9 years coupon % S&P credit rating.. A- «A» yield spread bps 9 year-uk Gilt yield % Discounting rate is 4.50 % V % Quote on 12/13/ % 09/10/2011 Pr. Didier Folus 16