Par yield and Ratings trigger: Difference between pages

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imported>Doug Williamson
(Added additional links)
 
imported>Doug Williamson
(Expand first definition and link with Acceleration page.)
 
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Today’s market yield on a coupon paying bond trading at par and redeemable at par
#A clause in loan documentation to protect the lender against deterioration in the credit rating of the borrower. For example, a ratings trigger might stipulate that if the credit rating falls below a specified level, this event will trigger immediate repayment of the borrowing.
#A pricing grid in loan documentation, relating the pricing of the borrowing to the credit rating of the borrower.
= the fixed coupon rate payable on such a ‘par bond’.




'''Example'''
== See also ==
* [[Acceleration]]
* [[Credit rating]]
* [[Pricing grid]]


The par yield for the maturity 0-3 periods is 1.90% per period.
[[Category:Treasury_operations_infrastructure]]
 
This means that a deposit of £1,000,000 at Time 0 periods on these terms would return:
 
*Interest at a rate of 1.90% per period on the original £1,000,000, at Times 1, 2 and 3 periods, and
*The principal of £1,000,000 at Time 3 periods
 
 
The interest payments will be £1,000,000 x 0.019 = £19,000 per period
 
The total repaid at Time 3 periods will be: principal £1,000,000 + £19,000 interest = £1,019,000.
 
 
An application of par yields is the pricing of new coupon paying bonds.
 
 
The par yield is known as the Par rate, Swap rate or Swap yield.
 
 
'''Conversion'''
 
If we know the par yield, we can calculate both the [[zero coupon yield]] and the [[forward yield]] for the same maturities and risk class.
 
 
 
== See also ==
* [[Bond]]
* [[Bootstrap]]
* [[Coupon bond]]
* [[Forward yield]]
* [[Market yield]]
* [[Par]]
* [[Swap spread]]
* [[Yield curve]]
* [[Zero coupon yield]]
* [[Flat yield curve]]
* [[Rising yield curve]]

Revision as of 13:50, 15 July 2015

  1. A clause in loan documentation to protect the lender against deterioration in the credit rating of the borrower. For example, a ratings trigger might stipulate that if the credit rating falls below a specified level, this event will trigger immediate repayment of the borrowing.
  2. A pricing grid in loan documentation, relating the pricing of the borrowing to the credit rating of the borrower.


See also

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