MKT 317 Lecture Notes - Lecture 2: Interest Rate Risk, United States Treasury Security, Corporate Bond
Document Summary
As interest rates fluctuate, the value of a. Long-term treasury securities have substantial interest rate risk. A treasury security will have greater interest rate risk because they have lower coupons due to lower default risk. If the bid price is higher than the ask price, the implication would be that a dealer was willing to sell a bond and immediately buy it back at a higher price. Treasury bid and ask quotes are sometimes given in terms of yields, so there would be a bid yield and an ask yield. Since the bid price must be lower, the bid yield must be higher. A company is contemplating a long-term bond issue. It is debating whether or not to include a call provision. If interest rates go down, a company can call a bond and replace it with another bond with a lower coupon rate: a company is able to eliminate the bond agreement at any moment by calling.
