Asset Classes: Debt Types

Question 1

maturity of a bill versus a bond

Answer 1

bill less than 1 year maturity

bond more than 1 year maturity

Question 2

4 features of a bond

Answer 2

coupon

name

nominal value

redemption (maturity)

Question 3

who issues UK government bonds on behalf of treasury

Answer 3

debt management office (DMO)

Question 4

what is an index-linked bond

Answer 4

coupon and redemption are linked to an inflation index (so they are inflation protected)

Question 5

which inflation index are UK inflation linked bonds indexed to

Answer 5

retail price index (RPI)

Question 6

in which countries is there a developed strips market

Answer 6

US, UK and Japan

Question 7

which parties are permitted to strip gov bonds in the UK

Answer 7

GEMMS
HM Treasury
Bank of England

Question 8

how to convert bond into number of strips and what are the strips

Answer 8

maturity x 2 + 1

5 year bond = 11 strips (11 zero coupon bonds)

this is for semi annual coupon

Question 9

what is reinvestment risk

Answer 9

where the investor may not receive a required rate of return when investing coupon payments

Question 10

what is dedication and what is the easiest way to do this

Answer 10

where investor matches maturity of cash flows to the liabilities

simplest way to do this is with a zero coupon bond

Question 11

two types of french government bonds and their maturity

Answer 11

BTF: less than 1 year

OATs: 2-50 years

Question 12

coupon frequency for french gov bonds

Answer 12

annual

Question 13

french government bond settlement

Answer 13

T+2

Question 14

4 types of german gov bonds and their maturity

Answer 14

bubills: 6-12 months

schatz: 2yrs

bobl: 5 years

Bund: 10-30 years

Question 15

german gov bond coupon frequency

Answer 15

annual

Question 16

german gov bond settlement

Answer 16

T+2

Question 17

UK gov bonds 4 types and maturity

Answer 17

T-bills: less than 1 year

short: less than 7 years

medium: 7-15 years

long: greater than 15 years

Question 18

UK gilt coupon frequency

Answer 18

semi annual

Question 19

UK gilt settlement

Answer 19

T+1

Question 20

USA 3 types of gov bonds and maturity

Answer 20

T-bills: less than 1 year

T-notes: 2-10 years

T-bonds: greater than 10 years

Question 21

US gov bonds coupon frequency

Answer 21

semi annual

Question 22

US gov bonds settlement time

Answer 22

T+1

T-bills - trade date

Question 23

japan gov bond maturity range and which is most common

Answer 23

2-40 years

10 year most common

Question 24

japan gov bonds coupon frequency

Answer 24

semi annual

Question 25

japan gov bond settlement date

Answer 25

T+1

Question 26

what are the two types of secured corporate debt

Answer 26

fixed charged over assets floating charge over assets

Question 27

what is fixed charge over assets

Answer 27

bond secured against a certain asset e.g. land or a building

Question 28

what is floating charge over assets

Answer 28

bond secured against a class of assets e.g. plant and machinery, trade receivables

Question 29

what is another name for unsecured debt

Answer 29

loan stock

Question 30

what is a debenture in the UK vs US

Answer 30

UK - secured debt US - unsecured debt

Question 31

what is US secured debt commonly known as

Answer 31

ABS - asset backed security

Question 32

difference between covered bond and asset backed security

Answer 32

covered bond: pool of assets is owned by the originator ABS: pool of assets is owned by an SPV

Question 33

what are the 4 types of trustee for secured debt

Answer 33

note trustee security trustee share trustee successor trustee

Question 34

typical maturity of unsecured corporate debt

Answer 34

7-30 years

Question 35

5 types of unsecured debt

Answer 35

convertible bonds exchangeable bonds guaranteed bonds floating rate notes payment in kind notes

Question 36

difference between convert and exchangeable bond

Answer 36

convertible - converts into stock of the issuer exchangeable - converts into another company's stock (usually subsidiary of the issuer)

Question 37

what type of unsecured debt is generally subordinated debt

Answer 37

payment in kind

Question 38

what are eurobonds

Answer 38

international bonds bearer documents issued in a eurocurrency (any other currency than that of the market it is issued on)

Question 39

where are eurobonds traded

Answer 39

typically OTC but some are exchange traded

Question 40

who regulates eurobonds

Answer 40

ICMA - international capital markets association

Question 41

where are trades reported and matched for eurobonds

Answer 41

TRAX

Question 42

what is settlement for eurobonds if settled through euroclear / clearstream

Answer 42

T+2

Question 43

eurobond coupons are what

Answer 43

gross annual coupons

Question 44

day count convention for eurobonds

Answer 44

30/360

Question 45

what does immobilisation mean re eurobonds

Answer 45

often are held in depositaries because are bearer documents

Question 46

4 variants of eurobonds

Answer 46

straight or plain vanilla - fixed coupon annually zero coupon bonds - issued at discount and redeemed at par floating rate eurobonds stepped bonds - coupon increases over the life of the bond

Question 47

what is the debt seniority in order from 1 to 9

Answer 47

1. liquidator 2. fixed charge holders 3. preferential creditors e.g. employees 4. floating charge holders 5. unsecured creditors 6. subordinated loan stock 7. mezzanine debt 8. preference shareholders 9. ordinary shareholders

Question 48

where do guaranteed and convertible bonds rank in seniority

Answer 48

alongside other unsecured bonds

Question 49

lowest IG credit rating

Answer 49

BBB- or Baa3 if moody's

Question 50

bond in default rating for the three agencies

Answer 50

S&P: D moody's: C fitch: D