Why the hell would anyone buy a bond giving 1.3% p.a. over 7 years with a minimum order of €100,000 ?
Anyway - why would a secondary market raise the price for this bond ?
As Ravima suggests, it would only happen if some institutions (temporarily) rotten with money could find no better use for it than to bid on a stock currently yielding 1.3% and offer them a margin to exit.
So as a private investor I think any high-volume & low-margin proposition like this should be seen like a poker raise.
The risk-calculated gains must at least equal the possible losses.
Because the coupon is fixed, a bond’s yield goes up when its price drops, and vice versa. Current yield is the amount of annual interest divided by a bond’s current price and yield to maturity factors in the difference between a bond’s current price and its face value at maturity.
Hold on there.
Coupon is normally expressed in terms of an interest rate, says Wikipedia.
Coupon is therefore fixed relative to the original (nominal) value.
The offer price going higher makes no difference to the yield of someone who already paid the original price.
It just affords them an exit margin.
Anyway - why would a secondary market raise the price for this bond ?
As Ravima suggests, it would only happen if some institutions (temporarily) rotten with money could find no better use for it than to bid on a stock currently yielding 1.3% and offer them a margin to exit.
So the bond market is a high-volume low-margin game at best.
I'm not sure that it is that certain, as de Moivre says.
All hangs on one's assessment of the liquidity state of the principal players in the market both now and in the future.
Bond market experts have this; the rest of us don't.
So as a private investor I think any high-volume & low-margin proposition like this should be seen like a poker raise.
The risk-calculated gains must at least equal the possible losses.
But rather comparing an opportunity for substantial capital growth as well as a modest dividend similar to that offered by the bond.
You're ignoring the risk of massive capital losses!It's not correct to compare a 1.3% coupon bond to a stock yielding 1.3%.
It's not.
And I wasn't.
But rather comparing an opportunity for substantial capital growth as well as a modest dividend similar to that offered by the bond.
Which is why I'd have tried to buy Three Gorges Corp bonds if they were convertible.
But they weren't.
Absolutely, and that's why there is a positive yield at all given that there are negative yields on less risky bonds. However, bondholders will take their hit a long time after shareholders in crisis events.Even state-backed corporations like Three Gorges could - in extreme circumstances, e.g. flood/landslide, innovation, etc - be compelled to
default on their debtors . . .
Stocks are by some order of magnitude more risky (volatile) than bonds.
Equities are alway more risky than (investment grade) bonds (otherwise how do you explain the equity risk premium?).
Not the case, they just have a different risk profile, that admittedly is not well understood.
Cremeegg
I think you might be confusing (or at least conflating) risk with probability.
Equities are alway more risky than (investment grade) bonds (otherwise how do you explain the equity risk premium?). But the probability (based on the history of the last century) that stocks will outperform bonds over longer holding periods is certainly true - which I think is the point you are making. That is not to say stocks become less risky over time - they don't.
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