Understanding Bond Trading.
Can some one please explain the fixed interest securuties for me.
If I look at the the market I understand the coupon rate ( the interest rate when the bonds were issued?)
And the maturity date is the date you get your money back?
But the buy and sell I am not sure about. I assume that say for Hellaby Holdings the buy of 12.9 means I would get 12.9% interest on the money I invest,while the sell 12 means 12% interest?
Also if the coupon rate is 8.5% and I buy at 12% then if i buy a $100 worth then I acually get $141 worth of bonds? Is that correct?
So if i hold those bonds to maturity Hellaby will pay me out $141? And also pay me $12 interest per annum?
Lastly what is the minimum number/ value I have to buy? Do you buy them like shares 1000 or 5000...? or do you buy them in $1000 or $5000.
I look forward to an answer thanks.
You've more or less got it. . .
OK, broadly speaking, it works like this:
You buy a bond at $1 face value. Normally you buy in 5k or 10k multiples. Lets assume you buy $10k at issue
Your bond has a coupon rate of 8%, the issuer pays you $800 pa, and you get your face value back at maturity.
But hey - interest rates rise. And you need to sell. So 8% is no longer all that attractive, so nobody's gonna pay you $1. They'll pay you (say) 90c, so that they get a decent return. You take a capital loss.
They keep getting 8% on the $1 face value, but have paid only 90c in the dollar, so the effective interest rate is 8.9%. And there's an 11% capital gain at maturity.
Put those together, with some other stuff that I have difficulty understanding, and you get the yield.