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The article considers the pricing of premium bonds. The author seeks to determine the appropriate bond pricing equation for premium bonds under the assumption that taxpayers elect the amortization of the premium on a straight line basis as a deduction from regular taxable income. The author asserts that there are two parts of a bond pricing equation—one for discounts and par bonds and another for premium bonds. Additionally, the author discusses the coupon effect on yield to maturity and disproves Caks' method for deriving zero coupon discount rates from bond pairs.

States and municipalities throughout the United States depend on the municipal bond market to raise funds for important investments in America's schools, roads and highways, hospitals, utilities, and public buildings. Additionally, many individuals rely on municipal bonds as a dependable investment. Evidence suggests, however, that state and local governments that borrow money by issuing bonds and ordinary investors who buy those bonds may pay billions of dollars each year in unnecessary fees, transactions costs, and interest expense due to the lack of both transparency and liquidity in the municipal bond market. The liquidity cost alone represents approximately $30 billion per year on the current $2.9 trillion stock of outstanding bonds. This paper proposes the establishment of CommonMuni, a nonprofit, independent advisory firm that would reduce borrowing costs for municipalities and increase returns for investors by over-coming the difficulty individual municipalities and investors have in coordinating their actions and sharing market knowledge. CommonMuni would provide individualized advice, gather and disseminate information on bond issuers and transaction prices to increase transparency, and coordinate market participants to enhance liquidity in the municipal bond market. Importantly, CommonMuni could be started for roughly $25 million, or just a tiny fraction of the potential benefits. [ABSTRACT FROM AUTHOR]

We analyse the relationship between credit default swap (CDS), bond and stock markets during 2000–2002. Focusing on the intertemporal co-movement, we examine monthly, weekly and daily lead-lag relationships in a vector autoregressive model and the adjustment between markets caused by cointegration. First, we find that stock returns lead CDS and bond spread changes. Second, CDS spread changes Granger cause bond spread changes for a higher number of firms than vice versa. Third, the CDS market is more sensitive to the stock market than the bond market and the strength of the co-movement increases the lower the credit quality and the larger the bond issues. Finally, the CDS market contributes more to price discovery than the bond market and this effect is stronger for US than for European firms. [ABSTRACT FROM AUTHOR]

This article investigates the presence of long memory in bond yield spreads, looking at the spread between Moody's Baa and Aaa corporate bond yields as well as the spread between each of these series and the 10-year Treasury bond yield. Using the aggregated series and wavelet OLS estimator methods, the authors test the hypothesis that yield spreads follow a fractionally integrated process. We find significant evidence of the presence of long memory in these spreads, which suggests that a time element exists and should he accounted for when analyzing yield spreads, making investment allocation decisions, or using yield spreads as forecasting tools. [ABSTRACT FROM AUTHOR]

The article explores the effectiveness of duration models in analyzing the future performance of the securities market in the U.S. It proves that the higher-order terms in price elasticity models are not essentially the same as the additional factors in bond return models. Duration models are established by differentiating the value of an investment fund accrued over a particular period in relation to a change in the term structure during the period. The researchers suggest that duration models are effective tools for security analysis if correctly positioned.

Tests an asset pricing model, where the rate of return on a certain type of bond will be correlated with charges in the marginal utility of the representative investor, using bond market data from the United States between 1973 and 1995. Model performance for the period where the Federal Reserve's focus was on interest rates; Model performance when focus was on the money supply.