When issuing bonds, what are the various strategies behind selected low or high coupon rates?
The bond market is undeniably the biggest security market worldwide. It provides limitless investment options to investors. The bond market is not new for the investor however, when the number of new products multiplies, even a bond expert strangled with the ongoing market fluctuation and is challenged to keep pace.
Before selecting and setting the coupon rates, one should keep the key strategies in mind.
As the market interest rates fluctuate and go high, the bond prices start falling down. Also, if the interest rate is falling, the bond prices will rise. On the other hand, the ongoing market rates will let the investors conclude whether the coupon rates they will receive are optimal or not.
If there is a callback arrangement, the firm might get back to bonds before development. In such cases, financial backers might need to confront reinvestment hazards. Assuming it is high-coupon security, the financial backer might recuperate the greatest measure of cash before the call back is started.
Assuming the firm is offering a high coupon rate, that may be because there is an increased risk in purchasing the bond of that firm. Apart from this, if the financial backer is unwilling to take risks, they would favor a low coupon rate or a zero-coupon rate.
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