Английский язык. Практический курс для решения бизнес-задач

Corporates

Public and private companies issue corporate bonds, commonly known as corporates in order to meet both short– and long-term financing needs. The proceeds from a bond sale are therefore used for a wide variety of purposes, such as for the purchase of new equipment, the funding of general operating expenses or for the financing of a company M&As. Corporates are typically issued in multiples of $1,000, have a maturity range between one and 30 years and pay semi-annual interest. The vast majority of corporate bonds are fully taxable.

Corporate Bond Credit Quality

Credit quality is the most important concern for corporate bond investors. Most corporates are assigned credit ratings by Moody’s and S&P. These ratings classify an issuer as «high-grade» or «high-yield». High-grade bonds are considered fairly conservative investments since these companies are deemed to be in good financial health and are unlikely to have trouble meeting their debt obligation. These bonds are rated from «Aaa» to «Baa» by Moody’s, and from «AAA» to «BBB» by S&P.

High-yield bonds are considered speculative since they are issued by companies with more credit risk. These bonds are rated on a scale from «Ba» to «C» by Moody’s, and from «BB» to «D» by S&P. These bonds pay a higher rate of interest – and have a potentially higher rate of return – than their high-grade counterparts. However, high-yield bonds are only appropriate for risk-tolerant investors.

Municipals

States, cities, counties and towns issue municipal bonds. The proceeds from bond sales are used for the building and maintenance of a variety of public works projects – such as for the construction of schools, roads, hospitals and sport stadiums.

There are two types of municipal securities: General Obligation (GO) and Revenue Bonds. GOs are backed by the full taxing authority of the issuer, while Revenue Bonds are backed by the income generated from the project being financed.

Since municipalities can vary in credit quality, most municipal bonds are assigned a credit rating from either Moody’s or Standard & Poor’s. However, municipal buyers have the luxury of opting for no credit risk. Today, approximately 40% of all new issuance is «insured» by a major municipal bond insurance company. Insured bonds automatically receive the highest «AAA/Aaa» ratings since the insurance company guarantees that if a municipality is not able to meet its debt obligations, it will provide the payments of principal and interest.

Municipals are not taxed by the federal government, and are generally exempt from state and local taxes for residents of the issuing state. Since municipals are exempt from federal income taxes, investors in the 28% tax bracket or above would typically receive better returns with municipal bonds in their taxable accounts than with other higher-yielding, taxable fixed-income securities.

Certificates of Deposit

Certificates of deposit, or CDs, are time deposits issued by a bank, which pay a fixed rate of interest for a specified period of time. Since CDs are FDIC-insured, up to a maximum of $100,000 (per depositor, per financial institution, including principal and interest combined in each insurable legal capacity), credit risk is not a concern. CDs are generally offered in multiples of $1,000, while «Jumbo» CDs are sold in $100,000 denominations. CDs may also contain call provisions. CDs may be purchased directly from a bank or brokerage firm.

Putting It All Together

There is only one way to begin building a bond portfolio that is right for you. In fact, it is no different from the advice that you might receive if you decided to construct a stock portfolio: Start with a plan that works.

The best strategies for bond investors are the laddered portfolio and the diversified portfolio approach. Regardless of the shape of the yield curve, your interest rate outlook or the performance of a particular sector, these two basic strategies will help prepare the proper foundation to meet your specific financial objectives.

In a laddered portfolio, bonds mature in sequence over a period of years. As each security matures, the proceeds are reinvested in the longest maturity «rung» of the ladder. This is a rather conservative approach, but it is widely and successfully employed by individual investors since it minimizes reinvestment and interest rate risk.

You may also construct a diversified portfolio. This method uses a wide variety of bond classes and structures. This approach is designed to garner incremental yield by taking on a variety of risks – many of which tend to cancel out one another over time.

Source: SalomonSmithBarney, 2002, www.citibank.com

Essential Vocabulary

1. upside potential – потенциал роста цены или курса

2. downside risk – риск падения цены или курса

3. bondholder n – владелец облигации

4. public sector – государственный сектор

5. municipality n – муниципалитет

6. privately held company – частная компания

7. fixed-income security – ценная бумага с фиксированным доходом

8. outstanding a – неоплаченный долг; ценные бумаги в обращении

9. face value – номинал

10. callable bond – отзывная облигация

11. bullet n – зд. безотзывная облигация

12. redemption (Red) n – погашение, выкуп

redeem v – погашать

redeemable a – погашаемый

13. buyback n – обратная покупка, выкуп

buy back v – выкупать

14. Treasury Department (US) – Казначейство США

15. bill n – переводной вексель (тратта), казначейский вексель; банкнота; счет; документ о передаче прав собственности на товар; свидетельство долга заемщика кредитору; билль (закон)

16. note n – краткосрочная ценная бумага; долговое обязательство; банкнота; письменное обязательство выплатить определенную сумму на оговоренных условиях

17. Treasury Inflation-Protected Security (TIPS) – казначейская облигация, защищенная от инфляции

18. accrual n – начисление

accrue v – начислять

19. hedge n – хедж, хеджирование