Fixed income
Another term for bond market
101 Trillion
What was the worth of the global bond market at the end of
... [Show More] 2016
00:13
01:28
65 Trillion
What was the worth of the global stock market at the end of 2016
2.1 million
Amount of government bonds in existence at the end of 2016
14 trillion
How much of the 101 trillion of bonds does the U.S. account for?
Sovereign debt market
Largest segment of world bond market
Budget deficit
A shortfall of tax revenue from government spending
Lehman Brothers
In September 2008, this large Wall Street investment bank declared bankruptcy, which led to a panic in the financial industry
1. To create FX reserves through the U.S. treasury
2. To sell their own currency to weaken its value
Why do other countries purchase U.S. bonds?
Safest asset on earth
U.S. government bond
Credit worthiness
The U.S. has a strong reputation for this attribute as it taxes citizens and businesses of the wealthiest nation
exorbitant privilege
This term is used to describe the U.S.'s ability to print the dollar, the centralized world currency for fx and bond market
00:02
01:28
VIX
Volatility index "fear gauge." Bond yields go down as this goes up
1. In almost all countries, debt repayments lower a company's tax bill by reducing pre-tax profits through interest payments
2. Corporations can borrow money for longer terms from bond market than they can from bank
Two reasons companies borrow money on corporate bond market
Coupon
The stated interest payment made on a bond
Principal
The amount of money borrowed
APR
Annual Percentage Rate
Yield
This factor of the bond makes all bonds comparable
Inversley
The price and yield of a bond have this relation
Perpetual bond
Bond that has no maturity date, is not redeemable, and pays a steady stream of interest indefinitely
Compound interest
interest earned on both the principal amount and any interest already earned
1. Credit Risk
2. Macroeconomics
2 Bond yield drivers
Credit risk
the probability that the borrower will fail to pay some of the interest or principal
bond vigilantes
creditors who don't invest in government bonds due to credit worthiness
fiscal discipline
Due to the nature of credit worthiness, the bond market installs the attribute on governments looking to borrow
1. Debt/GDP
2. Deficit/GDP
3. Repayment schedule
Three factors to evaluate gov credit worthiness
Debt/Gdp
The government's debt as a percentage of GDP
higher
The higher the debt/gdp, the __________ risk of the bond
Deficit/GDP
Ratio of a governments budget deficit to its GDP
Negative
If a gov has a ______________ deficit to GDP ratio, the gov is spending more than they are making which increases their bond risk
Repayment schedule
Shows the distribution of interest and principal over the life of a loan
USA
This country takes advantage of its credit worthiness by issuing more short term low interest rate bonds
UK
This country takes the safe route by issuing more long term bonds for higher credibility and lower volatiloty
1. Credit ratings
2. Credit default swaps
2 credit risk indicators
Credit ratings [Show Less]