Academic literature on the topic 'Bond market'

This paper analyzes macroeconomic factors and their effect on 2-year government bonds of 11 countries in the European Monetary Union. I specifically looked at how a simultaneous budget and trade surplus effect a country's bond yield spread relative to Germany's bond yield. My model showed that double surplus countries have a larger yield spread than countries that do not have a double surplus.

Climate change represents one of the most discussed topics of the last decade, as well as one of the major cause for concern. In fact, related risks are not only limited to the environment itself, but they also jeopardize the society and the economy at both national and global levels. For this reason, between the variety of tools designed to deal with climate change effects, also finance made available new instruments whose aim is the enhancement of the transition to a low-carbon, climate-resilient economy. Among them, green bonds became the main fixed-income asset to finance sustainable projects in fields such as renewable energy, transport, carbon emission, waste management and pollution. This paper explores characteristics, role and scope of green bonds and provides an analysis of the green bond market, considering in particular its stage of development in selected emerging market economies. Finally, a technical analysis considering the presence of a green bond premium in the emerging markets concludes the last section.

<p>In the past, the Swedish bond market has been distinguished for its illiquidity and difficulties with retrieving information. This is the starting point of our thesis and the purpose is to analyze and describe the availability of the present corporate bond market for manufacturing firms in Sweden. In order to fulfill the purpose, a qualitative method was used and interviews with different operators of the market were conducted. Our respondents were sampled from large issuing companies, the major intermediaries and companies that have not tried bonds as a financing tool.</p><p>To fulfill our purpose, we analyzed subjects as credit rating, capital market segmentation, regulations and volume. We came to the conclusion that the Swedish corporate bond market is somewhat underdeveloped. This is due to the lack of public information regarding the bonds, such as prices, outstanding bonds and interest rates.</p><p>The availability for already active companies is good, mainly due to the important role the intermediaries play. The regulations set by authorities do not have great effect on the large companies in general, since they issue large amounts, the cost associated with the regulations do not affect them in a considerable way. One could rather see a positive side with the regulations, for example the increase of foreign issuers that entered the market the last couple of years and hence increasing the liquidity. A credit rating is sometimes beneficial but not always, it is not a necessity to enter the bond market.</p><p>As a matter of fact, it seems like volume is the most important reason to why medium-sized companies have limited access to the market. Since the minimum recommended volume to issue is 50 million SEK, many companies are excluded due to lack of financing need. Another important factor concerning medium-sized companies is that they do not have sufficient experience, knowledge or interest in the bond market. There are probably companies that would like to enter the bond market, who do not have the opportunity to do so, but this do not have anything to do with the lack of credit rating, rather the high cost associated with it.</p><p>The conclusion drawn is that it is hard to compare small and medium-sized companies with large already established actors. This is due to different need of capital and overall knowledge about the debt market.</p>

This dissertation empirically examines refunding decisions employed by issuers of tax-exempt bonds. Callable bonds contain embedded call options by virtue of provisions in bond indentures that permit the issuing firm to buy back the bond at a predetermined strike price. Such an embedded American call option has two components to its value, the intrinsic value and the time value. The issuer can realize at least as much as the intrinsic value by exercising immediately, when the option is in-the-money. Usually it is optimal for the holder of an in-the money American option to wait rather than exercise immediately, because the option has time value. It is rational for the holder to exercise the option when the total value of the option is no more than the intrinsic value. Option pricing theory can be used to identify two sub-optimal refunding strategies: those that refund too early, and those that refund too late. In such cases the holder incurs losses. I analyze the refunding decisions for two different samples of tax-exempt bonds issued between 1986 and 1993: the first consists of 2,620 bonds that are called, and the second contains 23,976 bonds that are never called. The generalized Vasicek (1977) model in the Heath, Jarrow, and Morton (1992) framework is used to construct binomial trees for interest rates, bond prices, and call option prices. The option pricing lattice is then used to compute the loss in value from sub-optimal refunding strategies, refunding efficiency, and months from optimal time for bonds in these two samples. Results suggest that sub-optimal refunding decisions cause losses to the issuers, which are present across bond and issuer characteristics. For the pooled sample of 26,596 bonds, the loss in value from sub-optimal refunding decisions totaled $7.2 billion, amounting to a loss of about 1.75% of total principal amount. Results indicate that issuers either wait too long to refund or never refund and cannot realize the present value saving of switching a high coupon bond with a low coupon bond, over a longer period of time. These results critically depend on the assumptions of underlying term structure model and are sensitive to model calibrated parameter values.<br>Ph. D.

Research on the impact of taxes on the pricing of government bonds has resulted in two somewhat conflicting arguments. The first is that of Schaefer's clientele effects. Schaefer finds that because of differing tax implications, investors will prefer some bonds to others, and no investor will want to hold all bonds. Litzenberger and Rolfo, meanwhile argue that a representative investor exists, and that all bonds are correctly priced for each tax bracket. In this situation, investors will hold positive amounts of all bonds. The purpose of this thesis, is to test which of these arguments hold in the US government bond market. A methodology similar to that used by Schaefer will be employed, however, we will replace the linear combination of Bernstein polynomials used by Schaefer with a different functional form known as basis splines. The period examined encompasses the pre-legislation, legislation, and the post-legislation period of the Tax Reform Act of 1986. We find that clientele effects exist during the pre-legislation period, that they diminish during the legislation period, and then disappear in post-legislation period.<br>Business, Sauder School of<br>Finance, Division of<br>Graduate

The paper focuses on capital market integration at sovereign bond market in eleven selected euro zone countries (Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal, and Spain). The first main objective is to test the degree of capital market integration before and after the crisis using Germany as a benchmark country and also among them as well. Secondly it evaluates and provides reasons of capital integration in time. The examination is applied through i) sigma convergence ii) yield spreads iii) correlation matrix iv) cointegration tests. I found almost zero yield differences before crisis. After 2008 results show segmentation in euro zone countries with certain special characteristic for countries with high credit ratings.

In this study, we explore models for optimal bidding in auctions on the bond market using data gathered from the Bloomberg Fixed Income Trading platform and MIFID II reporting. We define models that aim to fulfill two purposes. The first is to hit the best competitor price, such that a dealer can win the trade with the lowest possible margin. This model should also take into account the phenomenon of the Winner's Curse, which states that the winner of a common value auction tends to be the bidder who overestimated the value. We want to avoid this since setting a too aggressive bid could be unprofitable even when the dealer wins. The second aim is to define a model that estimates a quote that allows the dealer to win a certain target ratio of trades. We define three novel models for these purposes that are based on the best competitor prices for each trade, modeled by a Skew Exponential Power distribution. Further, we define a proxy for the Winner's Curse, represented by the distance of the estimated price from a reference price for the trade calculated by Bloomberg which is available when the request for quote (RFQ) arrives. Relevant covariates for the trades are also included in the models to increase the specificity for each trade. The novel models are compared to a linear regression and a random forest regression method using the same covariates. When trying to hit the best competitor price, the regression models have approximately equal performance to the expected price method defined in the study. However, when incorporating the Winner's Curse proxy, our Winner's Curse adjusted models are able to reduce the effect of the Winner's Curse as we define it, which the regression methods cannot. The results of the models for hitting a target ratio show that the actual hit ratio falls within an interval of 5% of the desired target ratio when running the model on the test data. The inclusion of covariates in the models does not impact the results as much as expected, but still provide improvements with respect to some measures. In summary, the novel methods show promise as a first step towards building algorithmic trading for bonds, but more research is needed and should incorporate more of the growing data set of RFQs and MIFID II recorded transaction prices.<br>I denna studie utforskar vi modeller för optimal budgivning för auktioner på obligationsmarknaden med hjälp av data som samlats in från plattformen Bloomberg Fixed Income Trading och MIFID II-rapportering. Vi definierar modeller som ämnar att uppfylla två syften. Det första är att träffa det bästa konkurrentpriset så att en handlare kan vinna auktionen med minsta möjliga marginal. Denna modell bör också ta hänsyn till fenomenet Winner's Curse, som innebär att vinnaren av en så kallad common value auction tenderar att vara den budgivare som överskattat värdet. Vi vill undvika detta eftersom det kan vara olönsamt att skicka ett alltför aggressivt bud även om handlaren vinner. Det andra syftet är att definiera en modell som uppskattar ett pris som gör det möjligt för handlaren att vinna en viss andel av sina obligationsaffärer. Vi definierar tre nya modeller för dessa ändamål som bygger på de bästa konkurrentpriserna för varje transaktion vi har data på. Dessa modelleras av en Skew Exponential Power-fördelning. Vidare definierar vi en variabel som indirekt mäter fenomenet Winner's Curse, representerad av budprisets avstånd från ett referenspris för transaktionen beräknad av Bloomberg som är tillgänglig när en request for quote (RFQ) anländer. Relevanta kovariat för transaktionen implementeras också i modellerna för att öka specificiteten för varje transaktion. De nya modellerna jämförs med en linjärregression och en random forest-regression som använder samma kovariat. När målet är att träffa det bästa konkurrentpriset ger regressionsmodellerna ungefär samma resultat som expected price-modellen som definieras i denna studie. När man däremot integrerar effekten av Winner's Curse med den definierade indirekta variablen kan vår Winner's Curse-justerade modell minska effekten av Winner's Curse, vilket regressionsmetoderna inte kan. Resultaten av modellerna som ämnar vinna en förbestämd andel av transaktionerna visar att den faktiska andelen transaktioner som man vinner faller inom ett intervall på 5% kring den önskade andelen när modellen körs på testdata. Att inkludera kovariat i modellerna påverkar inte resultaten till den grad som uppskattades, men ger mindre förbättringar med avseende på vissa mättal. Sammanfattningsvis visar de nya metoderna potential som ett första steg mot att bygga algoritmisk handel för obligationer, men mer forskning behövs och bör utnyttja mer av den växande datamängden av RFQs och MIFID II-rapporterade transaktionspriser.

The Efficient Market Hypothesis (EMH) has had significant impact on the theory and practice of investments. However technical trading rules have continued to be used by practioners and have been the focus of many academic studies which have focused on equity, foreign exchange and futures markets. The scarcity of research into technical trading models for fixed income markets is astonishing considering the significant size and consequent investor importance of fixed income markets relative to other financial markets and the extensive application of technical trading models by market participants. This is one of the few studies that develops a technical trading model applicable to fixed income markets. Black (1986) defined Efficient Markets as a market where deviations from fundamental values were short lived and small in magnitude. Fundamental asset values are hard to calculate, but we are able to identify fundamental values for a set of Government Bonds on the principle that yield relativities between such bonds are quite stable except for 'deliberate' changes in trading behaviour. We find that the deviations from fundamental value are short lived and small in magnitude. We exploit deviations from fundamental value by Butterfly Trading strategies; Normal Butterfly trades earning returns from movements in yield curve slope and curvature and Arbitrage Butterfly trades earning returns from yield curve curvature only. After considering transaction costs, we achieve annualised returns of 120bps from our Normal Butterfly trades and 72 bps from our Arbitrage Butterfly trades. Consistent with the risk-return relationship for financial instruments, we find that the returns and the volatility of returns for Normal Butterfly trades are higher than the returns and volatility of returns for Arbitrage Butterfly trades. Normal Butterfly trades are exposed to yield curve slope changes whereas Arbitrage Butterfly trades are not, resulting in higher risk and higher returns for Normal Butterfly trades. This finding is consistent with the results obtained by Fabozzi, Martellini and Priaulet (2005).