Why the True Price of a Bond Can Still Be Hard To Know
Odd Lots
Bloomberg
4.5 • 2K Ratings
🗓️ 5 April 2021
⏱️ 45 minutes
🧾️ Download transcript
Summary
In the modern age, we expect to be able to turn on our computers, enter in a ticker, and know the actual price of a financial instrument, such as a stock or a bond. But this is easier said than done, especially with bonds, and especially with bonds that are infrequently traded. Sometimes, in fact, bond pricing is a matter of opinion. At least that's the contention of Maciej Kowara and Eric Jacobson, analysts at Morningstar, who published a report earlier this year titled “Bond Pricing: Agreeing To Disagree.” They explain why there can still be disagreements about what a bond is actually worth from one firm to another.
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| 0:54.4 | Hello and welcome to another episode of the Adlots podcast. I'm Tracy Allowek. |
| 0:59.6 | And I'm Joe Wyesenthal. So Joe, I think equity markets have been getting all the attention lately. |
| 1:07.2 | Yeah. For good reason, you know, the index level is extremely high, individual stocks, |
| 1:13.8 | all kinds of wild stories. But I'm aware that there's also some interesting stuff at credit markets. |
| 1:18.8 | I mean, it's not getting as much attention, but I've kind of, I'm aware that there's some stuff |
| 1:25.2 | going on. Yeah, we're going to try to fix the imbalance of attention in this episode. |
| 1:31.5 | We're going to get very, very technical and a little bit wonky. Take a look at not just credit, |
| 1:37.8 | as you mentioned, corporate bonds, but we'll also look at things like U.S. |
| 1:42.4 | Treasuries, what's going on there. So I should just say as we're recording this episode, |
| 1:48.9 | I was just looking at the yield on the 30 year and that's getting up to almost 2%, |
| 1:54.8 | which is a nice round number that people like to focus on. But the question of course is when |
| 2:00.4 | we talk about bond yields, when we talk about bond prices, what exactly are we talking about? |
| 2:05.7 | None of these trade on an exchange. So where does that pricing information come from? |
| 2:11.6 | Yeah, this is always a fascinating question. We've discussed it in various forms a few times with |
| 2:17.2 | Chris White as well as others, which is just this idea that, okay, everyone can look up on their |
| 2:25.2 | monitor and see a quote for, to say, price of Microsoft shares, and we know where that comes from, |
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