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Full-Text Articles in Business
Floating Rate Notes, Steven D. Dolvin
Floating Rate Notes, Steven D. Dolvin
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As interest rates rise, bond prices fall. Given historically low interest rates, many investors are concerned about bond prices, particularly since the loose monetary policy being implemented by the Fed may trigger inflation and therefore higher future interest rates. To hedge away this interest rate risk, some investors have used inflation protected securities. The Treasury, however, just launched another alternative -- floating rate notes. The interest paid on these notes rise as market rates rise, thereby also protecting the bond's price. See article here, WSJ.
Even Adults Like "Happy Meals", Steven D. Dolvin
Even Adults Like "Happy Meals", Steven D. Dolvin
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Higher risk companies, in order to sell bonds at lower interest rates, must often attach "sweetners" to the bond offering. Historically this has included warrants or conversion options. Recently, however, some companies have offered a combination of bonds and a loan of the company's shares, a so-called "Happy Meal." The bond buyers subsequently sell the shares short. If the company fails, the investors lose on the bonds, but make a profit on the short sale. This strategy is typically employed by hedge funds. See article here, Wall Street Journal.
Municipal Bond Risk -- Detroit, Steven D. Dolvin
Municipal Bond Risk -- Detroit, Steven D. Dolvin
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Municipal bonds usually have a lower yield to maturity than comparable US Treasury bonds. While this would normally be indicative of lower risk, it is purely a function of the tax advantages they provide. However, as the recent Detroit, MI bankruptcy filing suggests, municipals do indeed carry higher risk. (See article here, Yahoo! Finance.)
Bonds = Safe Investment?, Steven D. Dolvin
Bonds = Safe Investment?, Steven D. Dolvin
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As the recent offering of bonds by Apple illustrates, bonds are subject to their own types of risk. In particular, price risk exists since prices react to changes in interest rates. As is the case with the Apple bonds, a recent rise in rates has significantly reduced the price of these bonds, leading to a capital loss for bondholders. See article here, International Finance Review.