Bloomberg Cours 1: Part 3 - Fixed
Income
Fixed income - ANSAnother term for bond market
101 Trillion - ANSWhat was the worth of the global bond market at the end of 2016
65 Trillion - ANSWhat was the worth of the global stock market at the end of 2016
2.1 million - ANSAmount of government bonds in existence at the end of 2016
14 trillion - ANSHow much of the 101 trillion of bonds does the U.S. account for?
Sovereign debt market - ANSLargest segment of world bond market
Budget deficit - ANSA shortfall of tax revenue from government spending
Lehman Brothers - ANSIn 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 - ANSWhy do other countries purchase U.S.
bonds?
Safest asset on earth - ANSU.S. government bond
Credit worthiness - ANSThe U.S. has a strong reputation for this attribute as it taxes citizens
and businesses of the wealthiest nation
exorbitant privilege - ANSThis term is used to describe the U.S.'s ability to print the dollar, the
centralized world currency for fx and bond market
VIX - ANSVolatility 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 -
ANSTwo reasons companies borrow money on corporate bond market
Coupon - ANSThe stated interest payment made on a bond
, Principal - ANSThe amount of money borrowed
APR - ANSAnnual Percentage Rate
Yield - ANSThis factor of the bond makes all bonds comparable
Inversley - ANSThe price and yield of a bond have this relation
Perpetual bond - ANSBond that has no maturity date, is not redeemable, and pays a steady
stream of interest indefinitely
Compound interest - ANSinterest earned on both the principal amount and any interest already
earned
1. Credit Risk
2. Macroeconomics - ANS2 Bond yield drivers
Credit risk - ANSthe probability that the borrower will fail to pay some of the interest or principal
bond vigilantes - ANScreditors who don't invest in government bonds due to credit worthiness
fiscal discipline - ANSDue 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 - ANSThree factors to evaluate gov credit worthiness
Debt/Gdp - ANSThe government's debt as a percentage of GDP
higher - ANSThe higher the debt/gdp, the __________ risk of the bond
Deficit/GDP - ANSRatio of a governments budget deficit to its GDP
Negative - ANSIf a gov has a ______________ deficit to GDP ratio, the gov is spending more
than they are making which increases their bond risk
Repayment schedule - ANSShows the distribution of interest and principal over the life of a loan
USA - ANSThis country takes advantage of its credit worthiness by issuing more short term low
interest rate bonds
Income
Fixed income - ANSAnother term for bond market
101 Trillion - ANSWhat was the worth of the global bond market at the end of 2016
65 Trillion - ANSWhat was the worth of the global stock market at the end of 2016
2.1 million - ANSAmount of government bonds in existence at the end of 2016
14 trillion - ANSHow much of the 101 trillion of bonds does the U.S. account for?
Sovereign debt market - ANSLargest segment of world bond market
Budget deficit - ANSA shortfall of tax revenue from government spending
Lehman Brothers - ANSIn 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 - ANSWhy do other countries purchase U.S.
bonds?
Safest asset on earth - ANSU.S. government bond
Credit worthiness - ANSThe U.S. has a strong reputation for this attribute as it taxes citizens
and businesses of the wealthiest nation
exorbitant privilege - ANSThis term is used to describe the U.S.'s ability to print the dollar, the
centralized world currency for fx and bond market
VIX - ANSVolatility 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 -
ANSTwo reasons companies borrow money on corporate bond market
Coupon - ANSThe stated interest payment made on a bond
, Principal - ANSThe amount of money borrowed
APR - ANSAnnual Percentage Rate
Yield - ANSThis factor of the bond makes all bonds comparable
Inversley - ANSThe price and yield of a bond have this relation
Perpetual bond - ANSBond that has no maturity date, is not redeemable, and pays a steady
stream of interest indefinitely
Compound interest - ANSinterest earned on both the principal amount and any interest already
earned
1. Credit Risk
2. Macroeconomics - ANS2 Bond yield drivers
Credit risk - ANSthe probability that the borrower will fail to pay some of the interest or principal
bond vigilantes - ANScreditors who don't invest in government bonds due to credit worthiness
fiscal discipline - ANSDue 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 - ANSThree factors to evaluate gov credit worthiness
Debt/Gdp - ANSThe government's debt as a percentage of GDP
higher - ANSThe higher the debt/gdp, the __________ risk of the bond
Deficit/GDP - ANSRatio of a governments budget deficit to its GDP
Negative - ANSIf a gov has a ______________ deficit to GDP ratio, the gov is spending more
than they are making which increases their bond risk
Repayment schedule - ANSShows the distribution of interest and principal over the life of a loan
USA - ANSThis country takes advantage of its credit worthiness by issuing more short term low
interest rate bonds
