One Bond At a Time

I borrow the title of one article written in 2017 'Saving the world, one bond at a time' by EuroMoney. The article refers to how World Bank, using capital market instrument of bond, mobilise assistance to prevent Ebola outbreak in Africa. Quite heavy reading, but a necessary historical lessons to tackle COVID-19.

Here are the link to a few other related and interesting articles on supranational issuing pandemic bonds. The fact is that bond are complicated and not many will care or understand how they operate. But it is necessary at the macro level to set the wheel of economics moving again. For those who are interested, please read. As for me, the more I read, the less I understood. But I will keep reading. Hope you will do so as well. One day, we will understand. 

Bonds are the bellwether of the economy. 

Example:

Imagine The Coca-Cola Company wanted to borrow $10 billion from investors to acquire a large tea company in Asia. It believes the market will allow it to set the coupon rate at 2.5% for its desired maturity date, which is 10 years in the future. It issues each bond at a par value of $1,000 and promises to pay pro-rata interest semi-annually. Through an investment bank, it approaches investors who invest in the bonds. In this case, Coke needs to sell 10 million bonds at $1,000 each to raise its desired $10 billion before paying the fees it would incur. 

Each $1,000 bond is going to receive $25.00 per year in interest. Since the interest payment is semi-annual, it is going to arrive at $12.50 every six months. If all goes well, at the end of 10 

years, the original $1,000 will be returned on the maturity date and the bond will cease to exist.

Pic. Motivation for today.