Story Bond

Categories: Bonds

Well, once upon a time, there was a castle loan in the kingdom of Yield. The princess wanted to pay only 5% a year to rent that money. She had found juuust the right castle she wanted to buy. She’d been cutting her hair for decades and selling it on cBay for the down payment. But then, one day, an ogre came by and took all of her money, her belongings, and her pink unicorn, and gave it all to the union elves.

So then the troll family who had loaned her the castle loans grew very nervous about collecting the debts she owed them, especially now that the ogre had taken her castle...and was kind of ruining it with the elves partying down way too hard.

The troll family bonds were backed by the value of the castle, and the family knew that. Even if the castle were completely ruined and turned to rubble, the lands around it were worth five times the bond’s principal.

So as the bond’s trading value had come down from its $1,000 par to being offered at only 600 bucks, investors who realized the great value of the pink unicorn breeding grounds around the castle wanted to buy the bond aggressively at these prices.

The brokers who wanted to sell the bond and make their nice commissions were only too happy to tell and retell this complex story. And, in fact, this is the genesis of a story bond.

That is, there is some explanation as to why the bond is trading at some meaningful discount or premium to where it was originally offered that is not explainable by normal market conditions, like Fed fund rates changing, or inflation moving, or other broad-based global debt phenomena that would raise or lower the tides, bringing up or down all boats.

And that’s a story bond. It’s a bond that has such a complicated, random, bizarre history behind it that investors need to have an endlessly long, painful story told to them before they feel comfortable enough to risk their money on that bond...and still be able to sleep at night.

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Finance: What is a story bond?7 Views

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Finance allah shmoop What is a story bond Well once

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upon a time there was a castle alone in the

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kingdom of yield The princess wanted to pay on ly

00:14

five percent a year to rent that money She had

00:17

found just the right castle she wanted to buy She'd

00:21

been cutting her hair for decades and selling it on

00:24

c baii you know for the down payment But then

00:27

one day a socialist ogre came by and took all

00:30

of her money her belongings and her pink unicorn and

00:33

gave it all to the union elves So then the

00:36

troll family who had loaned her the castle loans grew

00:39

very nervous about her collecting the debts she owed them

00:43

Especially now that the socialist ogre had taken over her

00:46

castle and was kind of ruining it with the elves

00:49

partying down way too hard Well the troll family bonds

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were backed by the value of the castle And the

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family knew that even if the castle were completely ruined

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by the trolls and the ogre and it turned to

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rubble while the lands around it were worth five times

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the bonds principle so is the bonds trading value had

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come down from its thousand dollars a unit par value

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to being offered it now only six hundred bucks investors

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who realised the great value of the pink unicorn breeding

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grounds around the castle wanted toe by that bond aggressively

01:24

at these prices Well the brokers who wanted to sell

01:27

the bond and make their nice commissions were only too

01:29

happy to tell and retail this complex story And in

01:33

fact this is the chances of a story bond that

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is There is some explanation as to why the bond

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is trading at some weird meaningful discount or premium toe

01:44

where it was originally offered or trading that is not

01:47

explainable by normal market conditions like fed fund rates changing

01:51

or inflation moving around or other broad based global debt

01:55

phenomena that would raise or lower the tides bringing up

01:58

or down all votes This is a story bond It

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has its own unique story that has to be told

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and retold like the bible again and again it's a

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bond that has such a complicated random bizarre history behind

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it that investors need tohave an endlessly long painful story

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like this one told to them before they feel comfortable

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Enough to risk their money on that bond And still

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you know be able to sleep at night because well 00:02:22.805 --> [endTime] you know who doesn't love a good bedtime story

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