• Bond's internal rate of return:  comprises:
  • income return (income generated by the bond holding)
  • Capital return (gain or loss on the initial investment)

• Nominal Yield
  • overall income generated as a proportion of its nominal value
• Income or Running Yield
  • overall income generated as a proportion of its current market value
• Redemption Yield (Yield to Maturity)
  • income generated as well as capital loss or gain, if the bond is held to maturity

• Government Bonds - sterling and overseas
• Index-Linked Government Bonds
  • coupon and redemption payment linked to measure of inflation
• Corporate Bonds - Investment Grade
  • Known as 'credits'
  • Higher yield as more risky
  • Bondholders rank above shareholders - less risky than shares
  • Rated by independent credit ratings agencies
    • Triple A - Triple B
• High Yield - Non-Investment Grade
  • Includes bonds rates BB and below
• Emerging Market Debt
  • bonds issued by governments and companies in less developed countries

Explain new issues and the underwriting process of Government and Corporate Bonds

Government: 

• Issued by Debt Management Office using an auction process
• Bids above £500,000 are made on a competitive basis, stating the amount and price
  • ranked  in order and sold to those whose bids are at or above min. amount
  • Successful bids accepted at the weighted average price

 Corporate Bonds:

• Issued through placing
• Priced by reference to yield margin or spread over that of a gilt of the same maurity
• Use of underwriter to guarantee whole issue.