in the battle against Covid-19, governments around the globe were on the cusp of becoming more indebted than at an
Posted: Sun May 29, 2022 4:45 pm
in the battle against Covid-19, governments around the globe
were on the cusp of
becoming more indebted than at any point in modern history, surpassing even
World War II. From Germany to Japan, Canada to China, fiscal
authorities spent
vast sums protecting their people and defending their economies
from the colossal
toll of the pandemic. At the same time corporations, emboldened
by
unprecedented government support for markets, are selling bonds like never
before. The borrowing binge has come with a hefty price tag—$19.5
trillion in 2020
alone, according to Institute of International Finance estimates.
Still, compared to
the alternative—a deep and lasting depression—that looked cheap. In a world
where rock-bottom interest rates have kept debt costs manageable, it’s also
affordable. But if rates rise faster and higher than expected, the
end of the Covid-
19 crisis could mark the beginning of a reckoning.
Answer each of the following questions in detail, using the
information given
above to illustrate your answers.
a) Define Deep-discounted, High Yield Junk Bond, Convertible,
Redeemable,
and Eurobond?
b) What is the relationship between interest rates and bond
prices?
c) What is credit rating and how does it impact the bond
market?
d) Is the current state of competition on the market affecting
accuracy of credit
ratings?
were on the cusp of
becoming more indebted than at any point in modern history, surpassing even
World War II. From Germany to Japan, Canada to China, fiscal
authorities spent
vast sums protecting their people and defending their economies
from the colossal
toll of the pandemic. At the same time corporations, emboldened
by
unprecedented government support for markets, are selling bonds like never
before. The borrowing binge has come with a hefty price tag—$19.5
trillion in 2020
alone, according to Institute of International Finance estimates.
Still, compared to
the alternative—a deep and lasting depression—that looked cheap. In a world
where rock-bottom interest rates have kept debt costs manageable, it’s also
affordable. But if rates rise faster and higher than expected, the
end of the Covid-
19 crisis could mark the beginning of a reckoning.
Answer each of the following questions in detail, using the
information given
above to illustrate your answers.
a) Define Deep-discounted, High Yield Junk Bond, Convertible,
Redeemable,
and Eurobond?
b) What is the relationship between interest rates and bond
prices?
c) What is credit rating and how does it impact the bond
market?
d) Is the current state of competition on the market affecting
accuracy of credit
ratings?