Pricing Euro Bonds

Pricing Euro Bonds

Nigel Owen

20 years: Debt capital markets

In this second part of the series, Nigel explains how to price a Euro denominated bond for the theoretical issuer, XYZ Corporation, using the building blocks outlined in the previous video. In this example, XYZ issues an eight-year bond.

In this second part of the series, Nigel explains how to price a Euro denominated bond for the theoretical issuer, XYZ Corporation, using the building blocks outlined in the previous video. In this example, XYZ issues an eight-year bond.

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Pricing Euro Bonds

7 mins 52 secs

Overview

A bond represents a series of cash-flows. Investors buying bonds acquire rights to receive those cash-flows at a series of dates – the interest payments during the life of the bond (the coupons) and return of the money at maturity (redemption). For new bonds, buyers and sellers need to agree a price and a yield (discount rate) to arrive at a present value, or price, at which they can transact. The yield is a component of the risk-free rate plus a risk premium (a credit spread). The choice of benchmark hinges on the currency of issue and the conventions that apply to bonds issued in that currency.

Key learning objectives:

  • How is a bond yield reflected in bond price?

  • What convention is used in the euro bond market for coupon payments?

  • How is a bond’s yield to maturity calculated in the euro bond market?

  • What is Euribor and what is an interest-rate swap curve?

  • What is the coupon rounding convention in euros?

  • What is the day-count convention for euros and what is this used for?

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Summary
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Expert
Nigel Owen

Nigel Owen

Nigel spent nearly 20 years in debt capital markets. During this time, he worked for The Royal Bank of Scotland, Royal Bank of Canada, and National Australia Bank. Nigel has moved across various teams including treasury, private placement, origination, and syndicate. He currently works for the National Australia Bank to run the new issuance desk in Europe.

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