I can not find a formal definition of “Bullet Bond” in CFA curriculum’s glossary. Is it the option-free coupon-bond with its principal repaid only on its maturity ?
Err… yes?? Yes!
No coupons. Almost always sold at a discount and the face is repaid at maturity.
Kabaka Wrote: ------------------------------------------------------- > No coupons. Almost always sold at a discount and > the face is repaid at maturity. ^You’re thinking of a zero-coupon bond. Bullet bond just means all principle is paid at maturity (both with coupons or not).
alta168 Wrote: ------------------------------------------------------- > I can not find a formal definition of “Bullet > Bond” in CFA curriculum’s glossary. Is it the > option-free coupon-bond with its principal repaid > only on its maturity ? Alta i saw a definition in book 4 as i recall and it pretty much is as u stated
alta168 Wrote: ------------------------------------------------------- > I can not find a formal definition of “Bullet > Bond” in CFA curriculum’s glossary. Is it the > option-free coupon-bond with its principal repaid > only on its maturity ? That is correct. A noncallable regular coupon paying debt instrument with a single repayment of principal on the maturity date.
Amazing, I can’t find “bullet bond” or “balloon” in CFA L3 books! The closest I can get: A bullet maturity means that the issue is not callable, putable, or sinkable prior to its scheduled final maturity. The trend toward bullet securities does not pertain to the high-yield market, where callables remain the structure of choice. With the hope of credit-quality improvement, many high-yield issuers expect to refinance prior to maturity at lower rates. (Level III Volume 4 Fixed Income and Equity Portfolio Management , 4th Edition. Pearson Learning Solutions p. 70). ---- PS. By searching “bullet”, I got bullet portfolio.
I think someone here came up with the words “bullet bonds” and now we’re going in great detail and confusing ourselves. Its a terminology thing. There isn’t such a thing as a “bullet bond” . A portfolio may be structured as a bullet i.e. the maturities of most of its bond are close to its ultimate horizon ( such as a pension fund’s horizon when a large number of workers approach retirement , think baby boomers) So we refer to a portfolio as bullet structured ( as opposed to other structures such as barbell). A bond is a bond is a bond , 1 maturity , callable or not , paying coupon from zero to some higher number. It is a component of a portfolio , a building block if you will. Its the combination of many such bonds that would derive a bullet structure in the portfolio
Well how to explain the following sentence if there’s no such a thing as bullet bond?
“In all but the high-yield market, intermediate-term and bullet maturity bonds have come to dominate the corporate bond market. Bullet maturities are not callable, putable, or sinkable.”
“Short-term bullets have maturities of one to five years and are used on the short end of a barbell strategy… Medium-term bullets are the most popular sector in the US and Europe… Long-term bulelts are the most comoonly used lont-term security in teh global corporate bond market.”
Bullet Bonds are bonds that are free of embedded options…?
Bullet bonds are normal coupon paying bonds that returns your principal upon maturity. Why it is termed as bullet is because the main portion of the cash flow is concentrated near the maturity.
I read through the whole thread but still can not fathom a definitive definition of “bullet bond”.
First is bullet bond coupon paying or not?
If it pays coupon, then it is the same as a plain vanilla bond?
If it does not pay coupon, then it is the same as a ZCB?
i think the word is not supposed to have such a narrow meaning.
e.g. a ‘barbell porfolio’ is a broad term, and doesn’t mean there are only two cashflow in the maturity structure.
so back to you’re question.- a bullet would not be amortizing or have a large coupon. but could have a low coupon or be a zero.
when you get to discussing bullet portfolios, then i guess it could be anything…