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  1. jazzsidana

    jazzsidana Well-Known Member

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    Not my forte at all but hoping few great minds will be able to help understand how convertible bond works. I am taking tesla bond here as an example and attaching the screenshot ..

    upload_2019-6-25_20-24-37.png


    Things like Coupon/Face value are all new to me.

    What to lookout for when looking at purchasing?

    Any help will be super appreciated!

    Cheers,
     
  2. Trainee

    Trainee Well-Known Member

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    Well for one thing its not a convertible bond....
     
  3. PandS

    PandS Well-Known Member

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    coupon = interest rate they pay based on face value at the issue date
    face value = value of the bond at the time of issue (Aug 18 2017)

    but bond price can fall and rise when they start trading on secondary market
    depending on interest rate environment
    if rate fall bond value goes up so it could worth more than face value
    if rate rise bond value could fall below face value.

    And convertible bond are debt issues companies that give you an options to convert into shares and ride the upside of the shares price but protect you from the down side .

    so if share price trades less than the convert price at maturity, you said I don't want to convert to shares, I want my capital back please, but if your convert price is less than shares price
    you exercise your right and said I want all that money convert into shares, then sell that shares on market for a higher price.

    That the theory but there are associated risk like company may goes belly up and you lose 50% of the face value or 100% of it, depending what type of bond it is etc.

    bond is another asset with many in and out and pro and cons like anything else.

    If you want to see some example, open any brokerage platform like comsec and type in
    CBAPH, that CBA hybrid with face value of $100, it now trades at 103.280 since interest start sliding down
     
    Last edited: 25th Jun, 2019
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  4. jazzsidana

    jazzsidana Well-Known Member

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    So this doesn't have the option to convert it?

    I know the questions may sound silly but this is honestly my first learning exercise on how it works.
     
  5. Trainee

    Trainee Well-Known Member

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    Your better off reading a basic book about bonds if your serious.

    How do you teach someone about mortgages based on one newspaper ad with the headline rate when they dont know anything about mortgages? Though as a broker you should know about RMBS? Thats bond-like.

    That next option bit refers to issuer call. Tesla has the option to buy back the bond from you.
     
    Last edited: 25th Jun, 2019
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  6. Brumbie

    Brumbie Well-Known Member

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    Canberra
    Here is a start. Have a look at their website. Please note they are bond traders and are therefore biased.

    Corporate bonds, Fixed income education | FIIG Securities
     
  7. PandS

    PandS Well-Known Member

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    Just curious what made you interested in Tesla bond?
    it fairly risky bond in my book for the same yield you can do better in Australia with less risk.

    Bond market is the biggest market of them all, it is the daddy of who and who in the financial market and there are many types and ranking, you better do some reading before getting into it.
     
    Last edited: 26th Jun, 2019
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  8. qak

    qak Well-Known Member

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    I thought the face value is what you get at maturity, and the amount on which the coupon is calculated?
     
  9. PandS

    PandS Well-Known Member

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    pretty much the same thing, they issue at face value and whenever it matures you redeem for the same face value, in between it can be trade higher or lower depending on rates environment and if
    company gone belly up, then maturity redeem means nothing, you are in line with all the other creditors depending on your bond ranking and hopefully get something back but one thing for sure you face a massive haircut if the company gone into liquidation
     
  10. Brumbie

    Brumbie Well-Known Member

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    Yes agree. If you are after USD exposure bond, Tesla is extremely risky. Many others to choose from.
     
  11. geoffw

    geoffw Moderator Staff Member

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    With lower interest rates, bonds are becoming more attractive. It could be an era for bonds - a bond age.