Bond Market

 Bills are a type of contract between the borrower and the recipient. Each bond has a due date, ie a payback period. However, the lender, in other words the person holding the bond until the maturity of the capital and he wants to get the interest he deserves to do so by selling it to someone else. In other words, bonds can be traded in the second hand. Your debt ... 

Money Status

Bills are a type of contract between the borrower and the recipient. Each bond has a due date, ie a payback period. However, the lender, in other words the person holding the bond until the maturity of the capital and he wants to get the interest he deserves to do so by selling it to someone else. In other words, bonds can be traded in the second hand. 

After the first issuance of the bond by the borrower, the organized market in which the second hand is traded is the Bond Market in the ISE in our country. As with the stocks, investors who want to buy a certain bill, the investors who want to sell in the electronic environment in this market perform their transactions.

Bills, by definition, earn interest every day from the day of issuance until the maturity date (İTFA). Therefore, the investor holds the interest in his piggy bank every day and if any, coupon payment between the periods of interest at the end of all the accumulated interest and the principal money back. For an investor who does not trade in the second hand, the interest rates in the market do not matter much between the date of issuance and redemption. 

You have witnessed that bond interest rates have increased or decreased in some periods, either from screens, print media, or from banks with customer relationships. Interest movements change the value of the bond traded in the second hand market. The simplest rule you need to know is the inverse relationship between interest and price. If the interest rates increase, the price of the bond in hand decreases, and if the interest rates decrease, the price of the bond increases.

No need to panic. Again, the investor, who will continue to hold the bond until his due date, is not affected by the interest movements, he takes the interest and the principal back. 

Let us give a simple example of what we said above: 

A company that you trust is issuing 1 year term bonds with 10% interest. Today you will receive a TL 100 repayment fee and you have paid $ 91 today. (91% of the annual interest rate of 10% is approximately 9 TL, so the maturity and the sum of the interest is 100 TL).

With just one week out of the issuance, the markets were broken and 1-year bond interest rate rose to 15% with a rapid rise. In this case, the value of the bond in your hand drops to approximately 87 TL. (87 TL 1% 15% return is about 13 TL, the principal and interest in the sum of 100 TL) However, you do not harm it unless you try to sell it in the second hand, your investment of 91 TL will return to you as 100 TL after 1 year. 

Suppose, on the contrary, that interest rates have fallen to, for example, 6%. In this case, the value of the bond in your hand suddenly increases to TL 94. This appraisal does not contribute to you unless you sell second-hand. 

The above sample is given in order to show the inverse relationship between the interest rate and the price of the bond. Calculations are approximate.

In this week's article, we talked about how the bonds are traded in the second hand and how the price is affected by interest movements. In the next article, we will open discounted coupons and coupon bills while explaining different types of interest payments.