Reading 47
MODULE 47.1: FIXED-INCOME INSTRUMENT FEATURES
Describe the features of a fixed-income security.
Major types of fixed-income instruments include loans, which are private (nontradable) agreements between a borrower and lender, and bonds (or fixed-income securities), which are standardized, tradable securities representing a debt investment.
Investors in bonds are lending capital (referred to as principal, par, or face value) to the issuer of the bond. The issuer of the bond promises to repay this principal amount plus interest, typically in the form of a regular periodic coupon that is stated as a percentage of par. The capital raised is usually used to finance the long-term investments of the bond issuer. For a corporate issuer, loans and bonds are classified as long-term liabilities in the balance sheet.
固定收益工具主要分兩類：貸款（loans）是借貸雙方間私下簽訂、不可交易的契約；債券（bonds，亦稱 fixed-income securities）則是標準化、可在市場上交易的債務性證券。
債券投資人實際上是把資金（稱為本金 principal、面額 par 或 票面價值 face value）借給發行人。發行人承諾償還本金並支付利息，利息通常以定期票息（coupon）形式給付，並以面額的某一百分比表示。發行人募得的資金多用於長期投資。對企業發行人而言，借款與債券於資產負債表中列為長期負債。
Key features that are specified in a fixed-income security include the following:
- Issuer. Major issuers of bonds are sovereign national governments and corporations. Other issuers include local governments, supranational entities (e.g., the International Monetary Fund), quasi-government entities sponsored by the government (e.g., national railways), and special purpose entities, which are corporations set up to purchase financial assets and issue asset-backed securities, which are bonds backed by the cash flows from those assets.
- Maturity. The maturity date of a bond is the date on which the final cash flow is to be paid. Once a bond has been issued, the time remaining until maturity is referred to as the tenor of a bond. Bonds with original maturities of one year or less are referred to as money market securities. Bonds with original maturities of more than one year are referred to as capital market securities. Bonds that have no stated maturity date are called perpetual bonds.
- Principal (par or face value). The par value of a bond is the principal amount that will be repaid. Repayment of principal typically occurs at maturity, but debt instruments may specify that principal is paid back gradually over the life of the instrument, such as with a mortgage loan.
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Coupon rate and frequency. The coupon rate on a bond is the annual percentage of its par value that will be paid to bondholders. Some bonds make coupon interest payments annually, while others make semiannual, quarterly, or monthly payments. A \(\text{\$}1{,}000\) par value semiannual-pay bond with a fixed 5% coupon would pay 2.5% of \(\text{\$}1{,}000\), or \(\text{\$}25\), every six months.
- Some bonds pay coupons based on a variable market rate of interest at the date of coupon payment. These bonds are called floating-rate notes (FRNs) or floaters. The variable market rate of interest is called the market reference rate (MRR), and an FRN promises to pay the variable reference rate plus a fixed margin. This added margin is typically expressed in basis points, which are hundredths of 1%.
- Some bonds pay no interest before maturity and are called zero-coupon bonds or pure discount bonds. Pure discount refers to the fact that these bonds are sold at a discount to their par value, and the interest is all paid at maturity when bondholders receive the par value. A 10-year, \(\text{\$}1{,}000\), zero-coupon bond yielding 7% would sell for a bit more than \(\text{\$}500\) initially and pay \(\text{\$}1{,}000\) at maturity.
- Seniority. In the event of bankruptcy or liquidation of an issuer, debt investors' claims on the issuer's assets rank above those of equity investors, making debt senior to equity in the capital structure of the issuer. However, not all debt claims rank equally. Senior debt ranks higher than junior debt (also called subordinated debt), making senior debt a less risky investment from a credit risk perspective.
- Contingency provisions. A bond may have an embedded option, such as a call option, put option, or the right to convert the debt into equity.
固定收益證券的關鍵條款包括：
- 發行人（Issuer）：主要為主權國家政府與企業。其他包括地方政府、超國家組織（如 IMF）、政府支持的準政府機構（如國鐵）、以及購買金融資產並發行資產支持證券（ABS）的特殊目的實體（SPE）。
- 到期日與年期（Maturity / Tenor）：到期日是最後一筆現金流支付日。發行後距到期的剩餘時間稱為年期 tenor。原始期限 ≤ 1 年者為貨幣市場證券，> 1 年者為資本市場證券，無到期日者為永續債券。
- 本金（Par / Face Value）：將被償還的本金金額，通常於到期一次償還；部分債務（如房貸）會在存續期內逐步攤還。
- 票息率與頻率（Coupon rate and frequency）：以面額之年百分率計息，可能每年、每半年、每季或每月支付。例：面額 \$1,000、半年付息、票息 5%，每六個月付 \$25。
- 浮動利率債（FRN, floater）：以付息日當下的市場參考利率（MRR）加上固定加碼（以基點 bp 表示，1bp = 0.01%）計算票息。
- 零息債（pure discount bond）：到期前不付息，以面額折價發行；例如 10 年期、面額 \$1,000、殖利率 7% 的零息債初始售價略高於 \$500，到期領回 \$1,000。
- 順位（Seniority）：發行人破產清算時，債權人對資產的求償順位優先於股東，故債務優先於權益（senior to equity）。但債務間亦有差別：優先順位債（senior debt）順位高於次順位／附屬債（junior / subordinated debt），前者信用風險較低。
- 或有條款（Contingency provisions）：嵌入式選擇權，如贖回權（call）、賣回權（put）、可轉換為股權之權利等。
Yield Measures
Given a bond's price and its expected cash flows, we can calculate the expected return from investing in the bond, referred to as the bond's yield. For a fixed-coupon bond, when prices fall, the bond offers a higher yield, and when prices rise, the bond offers a lower yield. As such, prices and yields are inversely related.
For a given issuer, we will likely find that bonds of different maturity will offer different yields. A graphical plot of these yields versus maturity is referred to as a yield curve. An example of yield curves for U.S. Treasury bonds is displayed in Figure 47.1.
An upward-sloping yield curve (i.e., higher expected returns for longer-dated maturities), as U.S. Treasuries exhibited in mid-2018, is referred to as a normal yield curve because this is the shape most frequently observed. A normal yield curve reflects investor demand for higher returns for longer-dated maturities due to higher levels of uncertainty (i.e., risk) over longer time frames. A downward-sloping yield curve, as U.S. Treasuries exhibited in mid-2023, is less common and is referred to as an inverted yield curve.
Government bonds are often deemed to be of the lowest credit risk (highest credit quality) in a particular market due to the fact the bonds are backed by the tax-raising powers of the government. A government bond yield curve is commonly used as a benchmark to assess the extra returns (called spreads) offered by more risky issuers, such as corporations. For example, if a 5-year corporate bond were yielding 6% and 5-year government bonds were yielding 5%, then the spread offered by the corporate bond is \(6\% - 5\% = 1\%\).
殖利率（Yield）：給定債券價格與預期現金流，可推算其預期投資報酬率，即殖利率。對固定票息債券而言，價格下跌則殖利率上升，價格上漲則殖利率下降，價格與殖利率呈反向關係。
教授提醒：價格與殖利率的反向關係貫穿整個固定收益主題。若一檔現金流固定的債券要提供更高的報酬，唯一方式就是讓今日的買價更低。因此，殖利率上升 ⇔ 價格下跌；殖利率下降 ⇔ 價格上漲。
殖利率曲線（Yield curve）：將同一發行人不同到期期限的殖利率對應到期年限作圖。例：圖 47.1 為美國公債殖利率曲線。
- 正斜率（normal）：長天期殖利率高於短天期，反映投資人對長期不確定性要求較高補償（最常見），例如 2018 年中。
- 倒掛（inverted）：殖利率曲線下傾，較少見，例如 2023 年中。
政府債券由於有政府課稅權支持，通常被視為市場上信用風險最低（信用品質最高）的標的。政府債殖利率曲線常被當作基準，用以衡量風險較高的發行人（如企業）所提供的額外報酬，稱為利差（spread）。例：5 年期公司債殖利率 6%，同年期政府債 5%，則該公司債利差為 6% − 5% = 1%。
Describe the contents of a bond indenture and contrast affirmative and negative covenants.
The legal contract between the bond issuer (borrower) and bondholders (lenders) is called the bond indenture. The indenture defines obligations of, and restrictions on, the borrower, including the sources of repayment, and it forms the basis for all future interactions between the bondholder and the issuer.
債券契約（bond indenture）是發行人（借款人）與債券持有人（出借人）之間的法律合約，載明借款人的義務與限制（包括償付資金來源），亦是日後雙方所有互動的依據。
Sources of Repayment
The source of the cash flows required to be paid by the bond issuer depends on the nature of the issuer and type of bond issue.
- Sovereign (national government) bonds are repaid from taxes on economic activity and, in some cases, the ability of a government to create new currency. This tends to result in sovereign debt being perceived as the lowest credit risk in a particular region.
- Local government bonds are repaid from local government taxes or revenue from operational infrastructure, such as toll roads.
- Secured corporate bond: repaid from the operating cash flow of the company, with the added security of a legal claim (called a lien or pledge) on specific assets of the company (referred to as collateral) in the event of issuer default.
- Unsecured corporate bond: having no such claim, repaid only from the operating cash flow of the issuing company.
- Asset-backed security (ABS): financial assets held by the special purpose entity that has issued the ABS provide the cash flows promised to the ABS investors.
還款來源視發行人性質與債券類型而異：
- 主權債：由國家對經濟活動的課稅權支持，部分國家亦能新發貨幣，因此通常被視為該地區信用風險最低之標的。
- 地方政府債：以地方稅收或營運基礎設施收入（如收費公路）償還。
- 有擔保公司債（secured）：以公司營運現金流償還，並對特定資產（即抵押品 collateral）享有法律求償權（留置權 lien 或質權 pledge），違約時可優先求償。
- 無擔保公司債（unsecured）：無資產擔保，僅依公司營運現金流還款。
- 資產支持證券（ABS）：由 SPE 持有的金融資產所產生之現金流支付投資人。
Bond Covenants
While debt investments do not provide voting rights in the same way as an equity investment, certain legal rules known as covenants can be written into the bond indenture.
Affirmative covenants specify requirements the issuer must fulfill. These may require the issuer to provide timely financial reports to bondholders, specify the use of proceeds from the bond issue, or specify a bondholder's right to redeem at a premium to par if the issuer is acquired in a merger or corporate takeover.
Two examples of affirmative covenants are cross-default and pari passu provisions. A cross-default clause states that if the issuer defaults on any other debt obligation, the issuer will also be considered in default on this bond. A pari passu clause states that the bond will have the same priority of claims as the issuer's other senior debt issues.
Negative covenants place restrictions on the issuer. These can include restrictions on:
- entering into asset sales and leaseback agreements;
- pledges of collateral (the company cannot use the same assets to back several debt issues simultaneously);
- issuance of debt that ranks more senior than existing debt (referred to as a negative pledge clause); and
- additional borrowings, share repurchases, or dividend payments. These actions can be subject to an incurrence test relating to the financial ratios of the company — for example, they can only be carried out if debt/EBITDA is below a specified threshold.
Negative covenants protect the interests of bondholders and prevent the issuing firm from taking actions that would increase the risk of default. However, covenants must not be so restrictive that they prevent the firm from taking advantage of opportunities or responding appropriately to changing business circumstances.
債券雖無投票權，但契約中可載明條款（covenants）以保障債權人。
積極條款（affirmative covenants）：規定發行人「必須做」的事項，例如定期提供財務報告、限定募集資金用途，或約定發行人遭併購時持有人有權以面額溢價贖回。常見兩例：
- 交叉違約（cross-default）：發行人若對任何其他債務違約，本檔債券亦視為違約。
- 同等順位（pari passu）：本檔債券與發行人其他優先順位債具有相同求償順位。
消極條款（negative covenants）：規定發行人「不得做」的事項，例如：
- 不得簽訂資產出售與售後租回協議；
- 不得重複以同一資產設質擔保多筆債務；
- 不得發行順位高於現有債之新債（negative pledge clause）；
- 限制新增借款、回購股票或發放股利，常以財務比率觸發測試（incurrence test）為條件，例如僅於 debt/EBITDA 低於某門檻時方可執行。
消極條款用以保護債權人、防止發行人提高違約風險，但限制不得過度，以免妨害企業掌握機會或因應經營環境變化。
- A. yield multiplied by price.
- B. stated coupon rate multiplied by price.
- C. stated coupon rate multiplied by face value.
- A. their yields rise.
- B. their yields fall.
- C. their coupon rates fall.
- A. contains its covenants.
- B. is only required in the event of a lien on collateral.
- C. relates only to its interest and principal payments.
- A. trust deed.
- B. negative covenant.
- C. affirmative covenant.
Basic features of a fixed-income security include the issuer, maturity date, par value, coupon rate, coupon frequency, seniority, and contingency provisions.
- Issuers include corporations, governments, quasi-government entities, supranational entities, and special purpose entities set up to issue asset-backed securities.
- Bonds with original maturities of one year or less are money market securities; more than one year are capital market securities; no stated maturity are perpetual bonds.
- Par value is the principal amount that will be repaid to bondholders, usually at maturity.
- Coupon rate is the percentage of par value paid annually as interest. Frequency may be annual, semiannual, quarterly, or monthly. Zero-coupon bonds pay no coupon and are pure discount securities.
- Senior debt ranks above junior (subordinated) debt in bankruptcy. Junior bonds with lower credit quality must offer higher yields.
- Contingency provisions are rights to take actions in response to potential future events, e.g., the right for the issuer to call the bond back earlier than maturity.
The return earned from investing in a bond is the bond's yield. For a fixed-coupon bond, price and yield are inversely related. A plot of yield versus maturity is a yield curve.
Sources of repayment: sovereign bonds — taxing authority; non-sovereign government bonds — taxing authority or project revenues; corporate bonds — firm operations; securitized bonds — pool of financial assets. Bonds are secured if backed by specific collateral or unsecured if representing an overall claim on the issuer.
A bond indenture is a contract between issuer and bondholders that defines the bond's features and the issuer's obligations. It specifies the issuer, source of funds for repayment, collateral, credit enhancements, and covenants. Affirmative covenants specify actions the issuer must take; negative covenants specify restrictions on the issuer.
【LOS 47.a】固定收益證券基本要素：發行人、到期日、面額、票息率、付息頻率、順位、或有條款。
- 發行人：企業、政府、準政府機構、超國家組織、發行 ABS 的 SPE。
- 原始期限 ≤ 1 年為貨幣市場證券；> 1 年為資本市場證券；無到期日為永續債券。
- 面額（par）：到期償還之本金；票息率：以面額計算之年利率；零息債不付息，折價發行。
- 優先順位債（senior）求償順位高於次順位／附屬債（junior / subordinated），後者信用品質較低、需提供較高殖利率。
- 或有條款包含贖回權、賣回權、可轉換權等。
價格與殖利率反向；殖利率對到期年限作圖即殖利率曲線。
還款來源：主權債—課稅權；地方政府債—地方稅或專案收入；公司債—公司營運；ABS—資產池現金流。有擔保債有特定抵押資產，無擔保債僅有對發行人整體的求償權。
【LOS 47.b】債券契約（indenture）為發行人與持有人之契約，載明發行主體、還款資金來源、抵押資產、信用增強及條款。積極條款規定「必須做」之事項，消極條款規定「不得做」之事項。