The features of a bond are
determined by characteristics such as duration,
repayment, interest rate,
currency and issue price.
The issue price of a bond is not necessarily equal to the
nominal value; rather, it is determined on
the basis of the market conditions at the time of issue.
The nominal value is the total amount of the required capital that the issuer intends
to raise, e.g. CHF 1 million in denominations of CHF 5'000.
The issuer can now determine the issue price
-
above par (e.g. CHF 5'100 = 102%),
-
at par (e.g. CHF 5'000 = 100%), or
-
below par (e.g. CHF 4'900 = 98%)
This means that the bond is issued above, at or below its nominal value. The fine-tuning of the bond
yield at the time of issue is based on the issue price. The difference between the nominal value and
a higher issue price is referred to as the agio.
For example, an issue price of 102% would result in a premium of
2%. If the issue price is lower, the difference is referred to as a
disagio.
In practice, there are additional types of bonds whose issue price may be determined in different ways,
e.g. tender bonds,
discount bonds and
partly paid bonds.
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Typ
|
Description
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Tender bonds
|
An issuer of tender bonds discloses the interest rate, the duration and the (approximate) capital
requirement, but not the issue price. Investors wishing to subscribe tender bonds before they are
traded on the stock market have to submit not only the desired amount
(e.g. CHF 30'000), but also a personal offer
for the issue price (e.g. 100.6%).
The issuer allocates the bonds according to who makes the best offers until the capital required
has been raised. If the desired amount is reached with all offers of 100.5%,
for example, the entire issue is sold at this price. Investors who offered more than
100.5% receive full allocations. Those who offered precisely
100.5% may receive only partial allocations. Those who offered less
receive no allocation.
| |
Discount bonds
|
Discount bonds offer lower interest rates than classic bonds. They are
issued substantially below par in order to provide the desired yield.
| |
Partly paid bonds
|
In the case of partly paid bonds, only part of the nominal value has to be paid
at the time of issue. The remaining amount is paid at a predetermined later date.
|
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