Coupon Rates Research Articles

Exploring Greenium and the Determinants of Green Bond Performance in Asia

This study examines the presence and determinants of the ‘greenium’ in Asian green bonds. The dataset includes green bonds issued by governments and corporations in Asian countries from 2016 to 2022. To analyse the determinants of the greenium, we applied a coarsened exact matching (CEM) model, an advanced form of the matching method. Ordinary least squares (OLS) regression was employed to assess the factors influencing the greenium. Our findings indicate that a greenium exists in green bonds issued in Asia, with significant effects observed in China, Korea, and Japan. Key drivers of the greenium include coupon rates, issuer type, oil prices, and the federal funds rate. This study contributes practical insights by highlighting that a greenium can be achieved through strategic project selection, transparent communication, and strong environmental commitment. Additionally, investors should account for coupon rates, issuer sector, and macroeconomic factors such as oil prices and the federal funds rate when investing in green bonds.

DETERMINAN SISI PENAWARAN GREEN BONDS ASEAN

The explicit objective of this study is to analyze the factors influencing the supply side of Green Bonds in ASEAN countries. This research aims to examine how the characteristics of green bonds and the characteristics of issuing companies affect the amount of green bonds issued in ASEAN countries, particularly in Malaysia, Singapore, Thailand, and the Philippines during the period from 2018 to 2021. This study employs a quantitative research design with a linear regression analysis approach using the Ordinary Least Squares (OLS) method. This design was chosen to identify and measure the relationship between the independent variables (green bond characteristics and issuer company characteristics) and the dependent variable (the amount of green bonds issued). The independent variables in this study are Green Bond Characteristics, proxied by coupon rates and risk premiums. Additionally, the study includes the variable Issuer Company Characteristics, proxied by the debt ratio of the issuing company. The dependent variable in this study is the amount of green bonds issued. This research utilizes panel data that encompasses green bonds issued in four ASEAN countries (Malaysia, Singapore, Thailand, and the Philippines) from 2018-2021. This panel data allows for analysis that accounts for variability over time and across different companies or countries. The findings of this study indicate that there is a significant relationship between the characteristics of green bonds and the characteristics of issuing companies with the amount of green bonds issued in ASEAN countries. Specifically, it was found that green bond characteristics such as coupon rates and risk premiums significantly impact the amount of green bonds issued. Higher coupon rates and higher risk premiums tend to reduce the amount of green bonds issued. Additionally, the characteristics of the issuing companies, particularly the debt ratio, were also found to have a significant influence on the amount of green bonds issued. Companies with higher debt ratios tend to issue more green bonds. Overall, this study identifies key factors influencing the supply of green bonds in ASEAN and provides insights that can support the development of policies and strategies to strengthen the green bond market in the region

Factors Influencing the Performance of Indonesia's Sukuk Index During the Covid-19 Pandemic

The performance of Sharia-compliant bonds or sukuk can be affected by both internal and external factors, such as coupon rates and macroeconomic variables. This study aims to examine the impact and contribution of variables, namely the volatility index (VIX index), global sukuk index, BI rate, Consumer Price Index, and exchange rates, on the return of the Indonesian sukuk index from January 2018 to February 2020 and from March 2020 to December 2022, before and during the Covid-19 pandemic. As a research method, the Vector Error Correction Model (VECM) is applied. Prior to the Covid-19 pandemic, the long-term return of the Indonesian sukuk index was driven by the VIX index, the BI rate, and exchange rates, whilst the global sukuk index had no influence. During the Covid-19 epidemic, the return of the Indonesian sukuk index was influenced by the VIX Index, the global sukuk index, inflation, and exchange rates, but was unaffected by the BI rate variable. During the Covid-19 epidemic, the return of Indonesian sukuk index was primarily driven by the global sukuk index.

Reduced interest option pricing for green bonds

PurposeThis paper originally proposed the fuzzy option pricing method for green bonds. Based on the requirements of arbitrage equilibrium, this paper draws on Merton's corporate bond option pricing model.Design/methodology/approachDescribing the asset value behavior of green bond issuing enterprises through diffusion-jump processes to reflect the uncertainty brought by carbon emission reduction policies and technologies, using approximation methods to get the analytical pricing formula and then, using a fuzzification technique of Choquet expectation under λ-additive fuzzy measures after considering fuzzy factors, the paper provides fuzzy intervals for the parity coupon rates of green bonds with different subjective levels for investors.FindingsThe paper proposes and argues the classical and fuzzy option pricing methods in turn for both corporate ordinary bonds and green bonds, considering carbon risk or climate risk. It implements the scenario analysis varying with industry emission standards and discusses the sensitiveness of the related key parameters of the option.Practical implicationsThe fuzzy option pricing for the green bonds provides the scope of the variable equilibrium values, operational theoretical supports and some policy implications of carbon reduction and promoting green funding.Originality/valueThe logic of introducing the fuzziness of the option pricing for the green bonds lies with considering the existence of fuzzy information about the project supported by the green bond and the subjectivity of investors and it also responds to changes in technological uncertainty and policy uncertainty in the process of “carbon peaking and carbon neutrality.”

Neuro quantum-inspired decision-making for investor perception in green and conventional bond investments

The purpose of this study is to make a comprehensive analysis of investor perceptions in the context of green and conventional bond investments. For this purpose, a new model is presented by considering two steps. First, a criteria set is generated by considering balanced scorecard perspectives that are finance, customer, organizational effectiveness and learning and growth. After that, the neuro Quantum fuzzy M-SWARA method is considered to weight these criteria. Secondly, seven critical determinants for bond investments are identified that are coupon rates, volume, maturity, riskiness, liquidity, volatility, and tax considerations. Neuro Quantum fuzzy TOPSIS approach is employed to rank these factors. The main contribution of the study is that by combining the balanced scorecard framework and quantum-inspired decision-making techniques, this paper offers a novel and sophisticated decision-making model to understanding investor behavior. Similarly, in the proposed model, a new methodology is generated by the name of M-SWARA. In this framework, some enhancements are adopted to the SWARA technique. The weighting results indicate that meeting customer expectations is the most critical factor that affects the investor perception to make investments to the bonds. Moreover, according to the ranking results, it is concluded that coupon rates are the most important item for both conventional and green bond investors. On the other hand, with respect to the conventional bond investor, tax is the second most essential factor. However, regarding the green bond investors, volatility plays a critical role. AcknowledgmentThis research has been/was/is funded by the Science Committee of the Ministry of Science and Higher Education of the Republic of Kazakhstan (№ AP 19679105 “Transformation of ESG financial instruments in the context of the development of the green economy of the Republic of Kazakhstan”).

Storm CAT Bond: Modeling and Valuation

The frequency and intensity of weather-related catastrophes, such as storms and floods, have been increasing due to climate change. This leads to rising storm catastrophe risks to the property–casualty insurance and reinsurance sector. In this article, we propose an index-based storm catastrophe (CAT) bond for reinsurers to hedge catastrophe risks related to storm losses. Storm loss data have a large portion of zero values and a continuous positive right-skewed distribution, together with high-dimensional spatial dependence. We address these unique properties by proposing a general two-part autoregressive (2PAR) distribution as the marginal model and a semicontinuous spatiotemporal vine copula as the dependence model. We investigate the CAT bond market equilibrium and endogenously solve for the optimal market price of risk and coupon rates. Our empirical results using historical loss data at the county level in Florida show that the proposed CAT bond can stabilize the reinsurer’s cash flows and create attractive returns to investors by offering high coupon rates. Our framework can be generalized to design and price other catastrophe financing facilities.

Relative Efficiency of Bonds and Sukuk: A Case of Selected Islamic Countries

This study compares the efficiency of bonds and Sukuk through a comprehensive analysis using descriptive statistics and regression techniques. The dataset includes outstanding Sukuk and bonds issued between 1993 and 2023 in Malaysia, Indonesia, Pakistan, Turkey, and Saudi Arabia. Objectives focus on examining mean coupon rate and yield-to-maturity (YTM) differences, exploring yield variations, and assessing efficiency levels. The analysis employs t-tests and ordinary least squares (OLS) regression. Findings indicate that bonds and Sukuk are sold at a premium, with mean coupon rates exceeding YTMs. A separate analysis supports the hypothesis that Sukuk may have higher mean YTMs and coupon rates than bonds. Sukuk exhibits significantly higher YTMs, indicating greater returns compared to bonds across the selected countries. Sukuk also demonstrates higher efficiency, reflected by a positive and significant coefficient, implying a more efficient yield-to-tenure ratio. Policy implications highlight the need to enhance regulation quality and transparency in disclosing yield differentials and risks and promote Sukuk as an attractive investment option. Diversifying investment portfolios and improving market liquidity is also recommended. Limitations include limited data availability, preventing analysis of individual countries and segregation between corporate and sovereign issues within Sukuk. In conclusion, this study provides valuable insights into the efficiency of bonds and Sukuk, offering policy recommendations. Disparities in mean coupon rates, YTMs, and efficiency levels underscore the importance of informed decision-making. Policymakers and investors can utilize these findings to understand the potential benefits of Sukuk and implement strategies to foster a more efficient and robust market. Further research is necessary to address data limitations and explore specific country-level dynamics and Sukuk classifications.

The Credit Suisse CoCo wipeout: Facts, misperceptions, and lessons for financial regulation

The Credit Suisse CoCo wipeout: Facts, misperceptions, and lessons for financial regulation

The income bond puzzle

The income bond puzzle

The origin of LYONs: A case study in financial innovation

The origin of LYONs: A case study in financial innovation

Do corruption perceptions impact the pricing and access of euro area corporations to bond markets?

Public sector corruption affects economic and financial outcomes, such as GDP growth, foreign direct investment, and government funding costs. Less is known about the spillovers from perceptions of public sector corruption on the private sector corporate bond market. In this paper, we assess the role of public sector corruption perception on corporate bond market variables in Europe using data of both country-level corporate bond indexes and firm-level corporate bond market issuances. At the aggregate country level, we find some evidence that country indices of corporate bonds' yields and coupons are higher in countries with more corruption. While we do not find effects of corruption on coupon rates at the individual firm level, we show that higher government corruption perception increases their yield to maturity and reduces the amounts raised by corporations through their bond issuances.

The term structure of mutual fund herding

AbstractThis paper investigates institutional herding behaviours in the U.S. Treasury market. We find that the level of herding is higher for bonds with a longer time to maturity and this pattern is significant only for buy herding, not sell herding. This term structure of herding is stronger for funds with a shorter investment horizon. These patterns remain strong for Treasury Inflation‐Protected Securities and for Treasuries with high coupon rates. Overall, our findings support investors' short‐termism as a channel for the term structure of herding and are inconsistent with other herding explanations, such as spurious herding, reputational concerns and information cascades.

Trade price clustering in the corporate bond market

PurposeIn this paper, the authors document the existence of price clustering in the US corporate bond market.Design/methodology/approachUsing a sample of 8,422,593 corporate bond trades in 2014, the authors find that over 18% (1,522,284 trades) of all bond trades end in a clustered price, defined as a price ending in 00, 25, 50, or 75.FindingsOverall, the authors find that both bond rating category and risk, as measured by standard deviation of prices, play a role in price clustering; speculative grade bonds account for the majority of clustered prices. Clustered prices are more likely to have higher coupon rates, higher prices, and higher standard deviations of price than bonds with non-clustered prices. Regardless of size, both buy and sell dealer trades with customers (relative to interdealer trading) lead to an increase in price clustering. Dealers appear to use clustered prices when purchasing from and selling to institutions and, therefore, may use a clustered price to insulate themselves from the risk of asymmetric information. Additionally, the prevalence of clustered prices for retail-sized dealer sell trades suggests that dealers exercise dealer power over retail-sized traders.Originality/valueThis paper contributes to the literature on price clustering by examining trade price clustering of corporate bonds. It is different from previous papers on price clustering in equities. Given that bonds tend to be priced off of yield, it is unusual that trade prices cluster. It also demonstrates what kind of bonds cluster and with which customers dealers trade at clustered prices. It parallels other research in demonstrating dealer power over retail-sized traders.

МЕТОДЫ УПРАВЛЕНИЯ ДОЛГОВЫМ ПОРТФЕЛЕМ В УСЛОВИЯХ ВЫСОКОЙ ВОЛАТИЛЬНОСТИ ПРОЦЕНТНЫХ СТАВОК

Volatility of interest rates is a factor that can negatively affect debt service costs and refinancing risks. In this article we propose measures and instruments that can help to decrease negative effects for debt portfolio management caused by interest rates volatility. These measures include employment of bonds with floating coupon rates, bonds with indexed principal value, bonds with call options as well as hedging by derivatives. Implementation of suggested measures can help to keep costs of debt relatively stable and sustain refinancing risks at acceptable level.

Investment Decision on Government Bonds and Sukuk in Indonesia

This research aims to find the factors that influence the decisions of institutional investors to invest in Government Bonds and Sukuk, as well as to disclose the oversubscribes of State Securities issued by Indonesian government. The investment decisions of investors in this study use a proxy data approach from variables that affect investment decisions. The type of research used is quantitative research using an econometric approach with the Auto Regressive Distributed Lag (Dynamic) Model. The research data used is a time series for eleven periods from 2009 to 2020. Data are analyzed using ARDL (Dynamic) Model with determination of lag using the Koyck model. The result of this research is that investment decisions with a rational approach to government bonds and sukuk are strongly influenced by macroeconomic and policy variables (inflation, exchange rates and the interest rate) and financial markets (financing interest rates, deposit rates, volumes and coupon rates).

A prepayment-risk-neutral pricing model for mortgage-backed securities

In this paper, we investigate a pricing model for mortgage-backed securities (MBSs) of a pay-through type of collateral mortgage obligation (CMO), embedded call options, which can be exercised by the intermediary, and pass-through MBSs. We suggest a prepayment-risk-neutral pricing model, applying a reduced-form prepayment rate model, and then compute and investigate the appropriate prices and spreads in the coupon rates between CMOs and PT MBSs. We believe that this study contributes in that it provides a sophisticated pricing model for MBSs, especially to the financial markets which are not advanced enough to finance with a simple type of MBSs.

GEORGIA STATE DEBTS AS SECURATIZATION EXAMPLE

The "conversion" of non-asset assets in the world financial markets (securitization) and their economic activity is the usual downward trend. Unfortunately, Georgia's successful "securitization" is more exception than practice. In this regard, the subject of our research is the successful result of this example - the "Securitization" of 832 million GEL of the state debt towards the National Bank. It should be noted that issued state and corporate securities are not distinguished by diversity. Since independence, the state has been facing a number of guaranteed debt obligations which have been delayed by time and many of them are still not settled. In addition to other debts, the government's indebtedness to the National Bank was steadily rising from the period of independence of Georgia and reached 832.846.323 GEL for 15 March 2006. The history of the accumulation of debt is linked to the state budget deficit, and from 1994 to 2006 the Ministry of Finance used the National Bank of Georgia to cover the budget deficit. Instead of a cold road, which means transactions with open market and investors, there was actually a cash emission (monetary financing) in Georgia. On 20 March 2006 the Government of Georgia and the National Bank signed an "Agreement between the Government of National Bank of debt measures", according to the National Bank of the government due amount must be 2030 to March 16 so that each year the debt One part of the registration of the National Bank on a yearly renewable yearly public debt liability - government bonds, and the other part - different term government bonds in the open market operations, which shall be covered from the respective years of state budgets. Annual interest rate on bonds was determined by 13% in 2006, 2007 and 2008, and the percentage of payments on mortgage lending amounted to 7% in 2006, 6% in 2007 and 2008. Annual interest rate on coupon rates and debt obligations on bonds in 2008 is determined by the Government and National Bank of Georgia in conjunction with market interest. With this agreement and emissions and repayment of these securities, the debt repayment schedule was completely withdrawn and the National Bank of Georgia had an important instrument. That is the debt that has just been recorded on the balance of the National Bank, has acquired a very important workload and function. At the same time, the bonds are not the only positive that has been achieved by the National Bank and Government Agreement. In this way the attitude of the government and the National Bank has changed - from now on, the NBG does not directly finance. Emission of state securities is carried out. This was the most important step, because the central bank financing of the budget deficit in any of the developed countries are not considered to be part of a stable macroeconomic environment, and vice versa - when direct lending is prohibited, it is recorded under a guarantee that Georgia will be a stable macroeconomic envirounment.

A SIMPLE LINEAR TEST OF THE INTEGRATION IN CORPORATE BOND MARKETS

The purpose of this article is to identify the key elements of market determinants of bond yield and the external borrowing environment. A reasonably integrated bond market is safer for both investors as well as issuers. It assesses the robustness of integration in corporate bond yields. Research method applied in this particular study includes the overview of theoretical concepts, literature review and analysis of secondary yield data. The results revealed significant differences between the sensitivity of coupon bonds and zero coupon bonds. It demonstrated stronger relationship between bond yield, money markets and external credit markets, respectively. Modern bond portfolios can be constructed focusing on factors beyond coupon rates, duration and credit rating, respectively. The outcome or further research could focus on examining alternate anchors against secured overnight short term financing rates.

The Emerging Asia Pacific Capital Markets: Mongolia

The Mongolian Stock Exchange was established in 1991, primarily to assist with the privatization of state-owned entities in the early stages of transition from a Soviet-led centrally planned economy to a market economy. At the end of 2019, 200 companies were listed on the MSE with 54 licensed brokerage firms. Total equity market capitalization was US$984 million — approximately 73% of GDP — and the annual equity trading volume was US$79.5 million. The low trading activity is considered to result from heavy concentration of shares, generally poor corporate governance, and lack of institutional investor base. Mongolia’s fixed-income market consists mostly of government bonds. The latest government bonds issued had maturities of one to three years and coupon rates of 14%–18%, attracting both local and international investors. To speed development of the Mongolian capital market, the government, often with help from international organizations, has been taking measures to improve governance practices of listed companies, develop the corporate bond market, introduce an institutional investor base, and list major state-owned mining companies. The timing for developing the capital market is also appropriate, because interest rates are on a downward trend in the past several years, pushing investors to seek higher returns that can no longer be gained from term deposits at banks.

Does a Company’s Environmental Performance Influence Its Price of Debt Capital? Evidence from the Bond Market

Previous studies suggest that a higher level of corporate social responsibility (CSR) is associated with a lower cost of equity capital. However, there are very few studies on the link between CSR and the cost of debt, particularly on the effects of the environmental aspect of CSR on the cost of debt. As one of the first attempts to study the effects of corporate environmental performance on the cost of debt, this article contains an analysis of a sample of 5,260 bonds issued in the EU and US markets over the 2016–2018 period. The findings suggest a negative association between environmental performance and the cost of debt, proxied as coupon rates, which means that higher environmental performance helps reduce the cost of debt financing through bond issuance. Such effect is consistent across bond maturities. <b>TOPICS:</b>ESG investing, fixed income and structured finance, developed markets, performance measurement <b>Key Findings</b> ▪ Environmental performance is negatively associated with the cost of debt, meaning that the lower the corporate environmental performance, the higher the cost of debt. ▪ The integration of environmental factors into investment processes and decision-making is apparent along each debt maturity. ▪ Assigning bonds specifically to green projects or activities by firms may not necessarily lower the cost of borrowing.