I just bought a bond issued by my state and it's got a 5% coupon rate. State has a decent credit rating so the bond, which is a new issue, is selling at a premium, which results in a yield to call of a little over 3%.
I asked my broker why they set a 5% coupon rather than 3%. He wasn't sure (but he was curious, too). The state is dealing with the impact of tax cuts (meant to stimulate business development over the long run); did they maybe set a high coupon because they overestimated how risky the market would consider their debt? I'm just not seeing their motivation for setting a 5% coupon.
I asked my broker why they set a 5% coupon rather than 3%. He wasn't sure (but he was curious, too). The state is dealing with the impact of tax cuts (meant to stimulate business development over the long run); did they maybe set a high coupon because they overestimated how risky the market would consider their debt? I'm just not seeing their motivation for setting a 5% coupon.
Bonds: Coupon vs. Discount/Premium
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