Bond returns

Afternoon,

To try and better understand bond valuations I thought I would use a real life example. Bonds are generally okay but the trading of bonds midway through their life seems to throw me a bit.

I am interested in buying a bond. I have a list of bonds from this page:

http://www.hl.co.uk/shares/corporate-bonds-gilts/bond-prices/gbp-bonds?sort=life

I am interested in bond with ISIN: GB0004037171 Halifax PLC

now the information shows a coupon of 11% so roughly £11 interest per annum per £100, dependant if the payments are semi annual.

By paying a price of £109 per £100 face value you will only receive the £100 at maturity and your £11 interest give or take some pennies. So although the coupon is attractive at 11% in 1 year and 2 months you won’t be much better off because the price has eaten away at your income through capital depreciation.

The question is: have I understood this correctly and is there anything/definitions I missed in my review?

Thanks for you help

1 Like

Your understanding is correct.

Thanks for the quick response Pokhim. Would you also know if the Gross redemption yield on this example is in effect the YTM?

Issuer Coupon Maturity Life Price § Last update Gross Redemption Yield Halifax Plc GBP | GB0004037171 11.0 17 Jan 2014 1 yr 2 mths 109.1 13 Nov 2012 2.949%

JohnnyBoy for president!

Correct. This is your YTM.

Thanks Pokhim.