Search

The article reports on the costliness of inefficient coupons on municipal bonds. Capitalists and financiers buy more municipal bonds which sell close to their par value which is the lowest yield but with a coupon enabling its sale near par value. Also, investors try to make the marginal utility per dollar that is invested in each bond equal. However, coupon payments on municipal bonds are costly to the investor as opposed to U.S. Treasury or corporate bonds.

The article provides an outlook for the corporate bond market. It is explained that the outlook for the corporate bond market cannot be viewed apart from other sectors of the capital market. The article cites the year 1959, when the net corporate bond financing dropped almost 30 per cent and corporate bond yields rose, which indicates the danger of segmental analyses of the capital market. Therefore, the assignment of the outlook for the corporate bond market means the outlook for interest rates, with a focus on the influence of the corporate sector.

Refunding is the operation by which the issuer of a bond calls it before maturity in order to replace it with another issue. The chief reason for calling is the interest saving which a new bond may make possible. In deciding whether to call a bond at any given time, the issuer must consider not only the potential savings from the current refunding, but also from future refundings up to some horizon fixed by financial policy. These savings must also be compared with those resulting from the decision to postpone refunding. This paper formulates the refunding problem in terms of a dynamic programming model in which the term structure of interest rates is utilized to obtain information about the future course of interest rates. [ABSTRACT FROM AUTHOR]

The article presents the author's response to the paper "An Alternative Approach to Predicting Corporate Bond Ratings," by Richard R. West. The author argues that West's dissection of a previous study has several weaknesses, including differences in the samples studied, the variables used and the orientation of each study. The author discusses each of these elements, bringing to light the conflicts that West introduces into the study of corporate bonds. Ultimately, the author finds that developing complex testing methods may be detrimental to the field before it is better understood.