Corporate Bond Fundamentals
Chapters in this video
- 0:00 Why falling rates are a double-edged sword
- 1:00 Par value, T+1 settlement, and the 98.50 quote trap
- 2:43 Bond indenture, trustee, and the Trust Indenture Act of 1939
- 4:07 Interest rate risk vs reinvestment risk seesaw
- 5:29 Call provisions, make-whole, and call protection
- 6:43 Yield to call, yield to maturity, and yield to worst
- 7:30 Rapid-fire exam recap
What this video covers
- Why par value is always $1,000 and how to convert a percentage-of-par quote (like 98.50) into the correct dollar price of $985
- The current T+1 regular-way settlement rule for corporate bonds, effective May 2024
- Why bearer bonds are dead, why everything is book-entry today, and how the bond indenture plus trustee structure protects investors under the Trust Indenture Act of 1939
- The six categories of bond risk, with special focus on why interest rate risk and reinvestment risk move in opposite directions
- How callable bonds work, why issuers call when rates fall, and why call protection benefits the investor (not the issuer)
- What a make-whole call provision actually requires, and why it effectively removes the issuer's incentive to call early
- When to quote yield to call (YTC) versus yield to maturity (YTM), and why yield to worst is the required quote on a callable premium bond
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