Story Bond
Categories: Bonds
Well, once upon a time, there was a castle loan in the kingdom of Yield. The princess wanted to pay only 5% a year to rent that money. She had found juuust the right castle she wanted to buy. She’d been cutting her hair for decades and selling it on cBay for the down payment. But then, one day, an ogre came by and took all of her money, her belongings, and her pink unicorn, and gave it all to the union elves.
So then the troll family who had loaned her the castle loans grew very nervous about collecting the debts she owed them, especially now that the ogre had taken her castle...and was kind of ruining it with the elves partying down way too hard.
The troll family bonds were backed by the value of the castle, and the family knew that. Even if the castle were completely ruined and turned to rubble, the lands around it were worth five times the bond’s principal.
So as the bond’s trading value had come down from its $1,000 par to being offered at only 600 bucks, investors who realized the great value of the pink unicorn breeding grounds around the castle wanted to buy the bond aggressively at these prices.
The brokers who wanted to sell the bond and make their nice commissions were only too happy to tell and retell this complex story. And, in fact, this is the genesis of a story bond.
That is, there is some explanation as to why the bond is trading at some meaningful discount or premium to where it was originally offered that is not explainable by normal market conditions, like Fed fund rates changing, or inflation moving, or other broad-based global debt phenomena that would raise or lower the tides, bringing up or down all boats.
And that’s a story bond. It’s a bond that has such a complicated, random, bizarre history behind it that investors need to have an endlessly long, painful story told to them before they feel comfortable enough to risk their money on that bond...and still be able to sleep at night.
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Finance: What is a story bond?8 Views
Finance allah shmoop What is a story bond Well once
upon a time there was a castle alone in the
kingdom of yield The princess wanted to pay on ly
five percent a year to rent that money She had
found just the right castle she wanted to buy She'd
been cutting her hair for decades and selling it on
c baii you know for the down payment But then
one day a socialist ogre came by and took all
of her money her belongings and her pink unicorn and
gave it all to the union elves So then the
troll family who had loaned her the castle loans grew
very nervous about her collecting the debts she owed them
Especially now that the socialist ogre had taken over her
castle and was kind of ruining it with the elves
partying down way too hard Well the troll family bonds
were backed by the value of the castle And the
family knew that even if the castle were completely ruined
by the trolls and the ogre and it turned to
rubble while the lands around it were worth five times
the bonds principle so is the bonds trading value had
come down from its thousand dollars a unit par value
to being offered it now only six hundred bucks investors
who realised the great value of the pink unicorn breeding
grounds around the castle wanted toe by that bond aggressively
at these prices Well the brokers who wanted to sell
the bond and make their nice commissions were only too
happy to tell and retail this complex story And in
fact this is the chances of a story bond that
is There is some explanation as to why the bond
is trading at some weird meaningful discount or premium toe
where it was originally offered or trading that is not
explainable by normal market conditions like fed fund rates changing
or inflation moving around or other broad based global debt
phenomena that would raise or lower the tides bringing up
or down all votes This is a story bond It
has its own unique story that has to be told
and retold like the bible again and again it's a
bond that has such a complicated random bizarre history behind
it that investors need tohave an endlessly long painful story
like this one told to them before they feel comfortable
Enough to risk their money on that bond And still
you know be able to sleep at night because well 00:02:22.805 --> [endTime] you know who doesn't love a good bedtime story