For anyone looking to make their money work smarter, fixed income investments are a key piece of the puzzle. Don't underestimate the power of stability and reliable returns in your financial journey! 🌟I wasn't financially free until my 40s, and I'm still in my 40s. I've bought my second house, earn on a monthly basis through passive income, and achieved 4 out of 5 goals. Investing was the wise decision I made
okay, so generally speaking, investing calls for more knowledge. For this reason, it's crucial to have a strong support system (financial counselor) to lead you through, particularly while choosing assets. I work with (REGINA LOUISE COLLARO), a registered wealth management company's partner investment advisor. For the record, it has been the best experience for my finances. You may have heard of her because of how well-known her services are. She helped me become financially solid through investment, and now I profit from her passive income strategies on a monthly basis.Therefore, I'll suggest that you choose a reliable investment advisor for yourself.
Regina Louise Collaro is based in the United States and can work with anybody wherever they stay. If you would like more information in reaching her, you can conduct a search online.
personally, I'm blessed and realizing I'm not the only one working with Regina Louise Collaro. I will consider myself lucky. I've been able to feed and make a living through her advice and great work. For such a person as Regina, I owe her gratitude, support and endless prayers as it is not easy to gain access to such a competent and reliable adviser. Who isn't just wise but has all it takes to handle an investment and is good at what she does.😊
Bonds pay coupons periodically, and the frequency is typically based on the conventions in a country or market segment. For example most bonds issued by continental European governments and corporations pay coupons once a year (i.e., annual pay coupon bonds). Most US, UK and Canadian government and corporate bonds pay coupons every 6 month (i.e. semiannual pay coupon bonds). In Indonesia, quarterly is the most common coupon frequency. Again you'll not the qualifier "most" in the forgoing sentences. Exceptions are numerous. In the US mortgage-backed securities usually pay interest monthly (mirroring the frequency of cash flows on the underlying pool of mortgage loans). A substantial minority of US corporates pay at different frequencies (e.g. monthly or quarterly) compared to the semiannual frequency cited above. This is especially true of floating rate instruments. That last line relates to the other part of your question: "..pay fixed coupons". Most bonds are fixed rate coupon instruments. this means the periodic coupons are for a fixed monetary amount. Example: assume a $1000 par value 5% coupon bond. The annual interest amount is $50 (1000 x 5%). The fixed coupon amount depends on whether the bond is annual pay ($50), semiannual pay ($25), quarterly pay ($12.50) or monthly pay ($4.17). I used the phrase "pay fixed coupons" to distinguish between such securities and floating rate instruments whose coupons vary over time based on some reference interest rate. (LIBOR used to be the most common reference rate, but has been displaced due to government diktat in most countries as of this year.)
when you say bonds and preferred stocks are callable and convertable does that mean that they can be converted from monetary value to another type eg bitcoin or assets like a car/house/ etc?
Some securities contain provision that allow the issuing corporation or government to buy securities back from investors before the end of the bonds contractual life (i.e. before maturity). This type of contract provision is referred to as an embedded option (i.e., it is built into or embedded into the security) and is a type of call option (i.e., the holder of the option, in this case the issuing government or corporation, has the right, but no obligation, to exercise that right to buy). If a callable bond/preferred stock is called the investor holding the security is forced to sell it back to the issuer for the call price. As compensation for the early retirement of the security the investor usually receives a call premium, which means the issuer pays the investor the security's par value plus a little something extra (all in cash, normally). A convertible security is a bond or preferred stock that (usually) gives the investor the right, but no obligation to turn the original security back in to the issuing corporation and receive (i.e., convert the bond or preferred stock into) different securities. The most common form is a bond/preferred stock issue that is convertible into a fixed number of common shares of the same company. However, there are many variations: convertible into a different company's common stock----exchangeable bonds, variable rather than fixed conversion ratio, mandatory convertibles, conditional convertibles---CoCos---, just to name a few.
Please can you explain further what you mean by '-backed securities'? So asset-backed securities mean that if the obligor doesn't pay then they can take the obligor's assets? And mortgage-backed securities mean that the obligor's house can be taken if the mortgage isn't paid back?
Mortgage-backed securities (MBS) and asset-backed securities (ABS) are subcategories of what are variously referred to as securitized debt or structured debt securities. Through a process referred to as asset securitization, a pool of assets (e.g. mortgage loans or credit card receivables) is gathered and placed in a special purpose vehicle (SPV), which is a legal entity (usually a trust) that becomes the legal owner of the securitized assets. Interests in the SPV are sold to investors. The investors in the MBS or ABS then share in the cash flows the obligors (i.e., the borrowers whose loans have been securitized) must pay under the terms of their debts. The investors subsequently have no claim against the original lender (e.g., the bank that originated the mortgage loan or the credit card company) as the title (legal ownership of the claim) is now held by the SPV. The only claim the investors have is on a share of the cash flow being collected on the securitized assets (i.e., the asset portfolio or collateral pool) owned by the SPV. The term asset securitization is sometimes confusing because the instruments held by the SPV are typically thought of as liabilities, which in fact they are from the standpoint of the borrower who is obligated to make payments under the terms of those contracts. However, from the standpoint of the originating lender (or whomever that lender sells the claim to), the loan or the receivable is an asset since (barring default) will generate cash inflows as the obligor makes the contractual payments.
Follow up to earlier reply: Yes the obligors asset (e.g., house, automobile) can be repossessed if the borrower defaults on their loan. However, that may be a rather laborious process and the investors are not directly involved in the decision over when and/or if to proceed to foreclosure/repossession. That decision is usually in the hands of a servicer that has contracted with the SPV to service the loans (e.g., collect payment, sent out late notices).
It's a matter of terminology, and unfortunately books/authors/websites are not universally consistent in the meaning implied by the phrase "hybrid security". Hybrid security usually means an instrument that exhibits the INVESTMENT CHARACTERISTICS of both debt and equity. An example of a hybrid security in this sense of the term would be a convertible bonds that an investor would have the right to convert into common stock. Such a convertible (and there are other types) usually pays periodic coupons and returns its principal at maturity. In the event the stock price declines the holder would earn a bond-like return based on the coupons and principal amount. Conversely, should the common stock into which the bond is convertible appreciate enough, the bond's conversion value will (possible very greatly) exceed the value of the future coupon and principal payment. To summarize, a convertible bond of this type has equity-like returns when the common stock appreciates and bond like returns if the equity value declines Preferred stocks (assuming they are not convertible or participating preferred) are usually considered fixed income securities, not hybrid securities. The classification of (non-convertible, non-participating) preferred is often confusing to people not previously exposed to them because most PREFERRED STOCKS are EQUITY SECURITIES from a LEGAL and ACCOUNTING perspective: - recorded on a company's balance sheet as equities - unlike bond cash flow, preferred dividends are not a legal obligation until declared payable by the company's board of directors, and if not declared payable, failure to pay preferred dividend is not considered a default - unlike bond principal which must be paid at maturity, preferred shares are perpetual (as in having no maturity date) similar to common shares. As investments, preferred stocks are very bond like, which is why they are considered "fixed-income" securities: - just like most bonds have fixed coupon rates, most preferred stocks have fixed ANTICIPATED dividend rates - just like bonds that have credit ratings that assess an issuer's ability to pay interest and principal, preferred stocks have ratings that assess the company's ability to pay the anticipated dividend - preferreds may also have many other bond-like features---they may be callable, convertible and unpaid dividends may accumulate (like unpaid coupons on bonds). So despite being equities for legal and accounting purposes, since most preferred stocks exhibit bond-like investment characteristics, they are usually not considered hybrid securities. I hope you find that explanation helpful.
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For anyone looking to make their money work smarter, fixed income investments are a key piece of the puzzle. Don't underestimate the power of stability and reliable returns in your financial journey! 🌟I wasn't financially free until my 40s, and I'm still in my 40s. I've bought my second house, earn on a monthly basis through passive income, and achieved 4 out of 5 goals. Investing was the wise decision I made
okay, so generally speaking, investing calls for more knowledge. For this reason, it's crucial to have a strong support system (financial counselor) to lead you through, particularly while choosing assets. I work with (REGINA LOUISE COLLARO), a registered wealth management company's partner investment advisor. For the record, it has been the best experience for my finances. You may have heard of her because of how well-known her services are.
She helped me become financially solid through investment, and now I profit from her passive income strategies on a monthly basis.Therefore, I'll suggest that you choose a reliable investment advisor for yourself.
Regina Louise Collaro is based in the United States and can work with anybody wherever they stay. If you would like more information in reaching her, you can conduct a search online.
personally, I'm blessed and realizing I'm not the only one working with Regina Louise Collaro. I will consider myself lucky. I've been able to feed and make a living through her advice and great work. For such a person as Regina, I owe her gratitude, support and endless prayers as it is not easy to gain access to such a competent and reliable adviser. Who isn't just wise but has all it takes to handle an investment and is good at what she does.😊
Great and easy explanation..thx
Such a lovely explanation, wish you were my professor
Belated thanks for your kind words. I hope you find other vids on my channel equally informative! Cheers, Doug
Thank you. Super clear, really appreciate your videos
Thank you for your kind words. By your comment it seems you have seen other vids. Glad you've found them helpful.
6:19 what is meant by "bonds pay fixed coupons" are coupons monthly/yearly monetary amounts?
Bonds pay coupons periodically, and the frequency is typically based on the conventions in a country or market segment. For example most bonds issued by continental European governments and corporations pay coupons once a year (i.e., annual pay coupon bonds). Most US, UK and Canadian government and corporate bonds pay coupons every 6 month (i.e. semiannual pay coupon bonds). In Indonesia, quarterly is the most common coupon frequency.
Again you'll not the qualifier "most" in the forgoing sentences. Exceptions are numerous. In the US mortgage-backed securities usually pay interest monthly (mirroring the frequency of cash flows on the underlying pool of mortgage loans). A substantial minority of US corporates pay at different frequencies (e.g. monthly or quarterly) compared to the semiannual frequency cited above. This is especially true of floating rate instruments.
That last line relates to the other part of your question: "..pay fixed coupons". Most bonds are fixed rate coupon instruments. this means the periodic coupons are for a fixed monetary amount. Example: assume a $1000 par value 5% coupon bond. The annual interest amount is $50 (1000 x 5%). The fixed coupon amount depends on whether the bond is annual pay ($50), semiannual pay ($25), quarterly pay ($12.50) or monthly pay ($4.17). I used the phrase "pay fixed coupons" to distinguish between such securities and floating rate instruments whose coupons vary over time based on some reference interest rate. (LIBOR used to be the most common reference rate, but has been displaced due to government diktat in most countries as of this year.)
Thank you
when you say bonds and preferred stocks are callable and convertable does that mean that they can be converted from monetary value to another type eg bitcoin or assets like a car/house/
etc?
Some securities contain provision that allow the issuing corporation or government to buy securities back from investors before the end of the bonds contractual life (i.e. before maturity). This type of contract provision is referred to as an embedded option (i.e., it is built into or embedded into the security) and is a type of call option (i.e., the holder of the option, in this case the issuing government or corporation, has the right, but no obligation, to exercise that right to buy). If a callable bond/preferred stock is called the investor holding the security is forced to sell it back to the issuer for the call price. As compensation for the early retirement of the security the investor usually receives a call premium, which means the issuer pays the investor the security's par value plus a little something extra (all in cash, normally).
A convertible security is a bond or preferred stock that (usually) gives the investor the right, but no obligation to turn the original security back in to the issuing corporation and receive (i.e., convert the bond or preferred stock into) different securities. The most common form is a bond/preferred stock issue that is convertible into a fixed number of common shares of the same company. However, there are many variations: convertible into a different company's common stock----exchangeable bonds, variable rather than fixed conversion ratio, mandatory convertibles, conditional convertibles---CoCos---, just to name a few.
Please can you explain further what you mean by '-backed securities'? So asset-backed securities mean that if the obligor doesn't pay then they can take the obligor's assets? And mortgage-backed securities mean that the obligor's house can be taken if the mortgage isn't paid back?
Mortgage-backed securities (MBS) and asset-backed securities (ABS) are subcategories of what are variously referred to as securitized debt or structured debt securities. Through a process referred to as asset securitization, a pool of assets (e.g. mortgage loans or credit card receivables) is gathered and placed in a special purpose vehicle (SPV), which is a legal entity (usually a trust) that becomes the legal owner of the securitized assets. Interests in the SPV are sold to investors. The investors in the MBS or ABS then share in the cash flows the obligors (i.e., the borrowers whose loans have been securitized) must pay under the terms of their debts.
The investors subsequently have no claim against the original lender (e.g., the bank that originated the mortgage loan or the credit card company) as the title (legal ownership of the claim) is now held by the SPV. The only claim the investors have is on a share of the cash flow being collected on the securitized assets (i.e., the asset portfolio or collateral pool) owned by the SPV.
The term asset securitization is sometimes confusing because the instruments held by the SPV are typically thought of as liabilities, which in fact they are from the standpoint of the borrower who is obligated to make payments under the terms of those contracts. However, from the standpoint of the originating lender (or whomever that lender sells the claim to), the loan or the receivable is an asset since (barring default) will generate cash inflows as the obligor makes the contractual payments.
Follow up to earlier reply: Yes the obligors asset (e.g., house, automobile) can be repossessed if the borrower defaults on their loan. However, that may be a rather laborious process and the investors are not directly involved in the decision over when and/or if to proceed to foreclosure/repossession. That decision is usually in the hands of a servicer that has contracted with the SPV to service the loans (e.g., collect payment, sent out late notices).
Great video! Are there great books you recommend for each market (or all of them)? Thank you!
Would dividends be considered a hybrid of equity and debt market (like preferred stock)? Thanks for the video!
It's a matter of terminology, and unfortunately books/authors/websites are not universally consistent in the meaning implied by the phrase "hybrid security".
Hybrid security usually means an instrument that exhibits the INVESTMENT CHARACTERISTICS of both debt and equity. An example of a hybrid security in this sense of the term would be a convertible bonds that an investor would have the right to convert into common stock. Such a convertible (and there are other types) usually pays periodic coupons and returns its principal at maturity. In the event the stock price declines the holder would earn a bond-like return based on the coupons and principal amount. Conversely, should the common stock into which the bond is convertible appreciate enough, the bond's conversion value will (possible very greatly) exceed the value of the future coupon and principal payment.
To summarize, a convertible bond of this type has equity-like returns when the common stock appreciates and bond like returns if the equity value declines
Preferred stocks (assuming they are not convertible or participating preferred) are usually considered fixed income securities, not hybrid securities. The classification of (non-convertible, non-participating) preferred is often confusing to people not previously exposed to them because most PREFERRED STOCKS are EQUITY SECURITIES from a LEGAL and ACCOUNTING perspective:
- recorded on a company's balance sheet as equities
- unlike bond cash flow, preferred dividends are not a legal obligation until declared payable by the company's board of directors, and if not declared payable, failure to pay preferred dividend is not considered a default
- unlike bond principal which must be paid at maturity, preferred shares are perpetual (as in having no maturity date) similar to common shares.
As investments, preferred stocks are very bond like, which is why they are considered "fixed-income" securities:
- just like most bonds have fixed coupon rates, most preferred stocks have fixed ANTICIPATED dividend rates
- just like bonds that have credit ratings that assess an issuer's ability to pay interest and principal, preferred stocks have ratings that assess the company's ability to pay the anticipated dividend
- preferreds may also have many other bond-like features---they may be callable, convertible and unpaid dividends may accumulate (like unpaid coupons on bonds).
So despite being equities for legal and accounting purposes, since most preferred stocks exhibit bond-like investment characteristics, they are usually not considered hybrid securities.
I hope you find that explanation helpful.