Workout Period

  

Time to work out. And one! And two! And three! Those temporary yield discrepancies aren’t going to work out themselves!

The workout period is a time when temporary yield discrepancies between fixed income securities are fixed to correct any market inefficiencies. Over time, the spread gets...worked out. Or narrowed.

Let’s break this down so you can, um...work it out.

There’s a fixed income market that sells bonds to investors. Over time, the yields on similar bonds might get skewed, resulting in very different yields for issues of similar risk and duration. This is a problem, since those similar bonds should be giving out similar yields at the same time in the marketplace. The workout period, then, is the market working to correct these inefficiencies. Working out those kinks. Fifty Shades of Bonds, or something like that.

Related or Semi-related Video

Finance: What is Bankruptcy?260 Views

00:04

Finance a la' Shmoop what is bankruptcy well in the old days

00:10

this was bankruptcy you'd go to prison if you couldn't pay your bills and [People in prison for bankruptcy]

00:14

unfortunately there weren't and still aren't a lot of legal high wage earning

00:19

opportunities in prison working your way out of debt on the chain gang wasn't [Prisoners working outside]

00:23

really a thing back then so instead the burden would be on your family to pay

00:27

back the loan you'd promised to pay back and didn't ugly situation it paved the [Officer knocking on a prisoners family member to pay their debts]

00:33

way for some well today bankruptcy has a range of flavors that it comes in but

00:38

basically it exists as a legal vehicle to avoid the aforementioned situation a [Bankruptcy van driving]

00:43

bankrupt person and/or corporation stands in front of a judge they turn

00:48

their pockets inside out with a sad face and the judge then decide who will be [Person opens their pockets inside out in front of a judge]

00:53

paid when and how much well how does she decide the order for who gets paid back

00:59

when? well, it usually prioritizes employees and vendors owed a paycheck

01:03

above banks who have made a loan and under that umbrella all different types

01:08

of loans have different priorities if the bankrupt individual owns a home it's [bankrupt individual in his home on the toilet reading a newspaper]

01:12

usually sold out from under him and anything left after paying off the

01:16

mortgage is used to pay others even if you do survive a bankruptcy your credit

01:20

is pretty much ruined who's going to want to loan you money once you've

01:24

proven that you're not good with being loaned money yeah if you've defaulted in [a really low credit score chart for a bankrupt individual]

01:29

the past on promises to pay people back why wouldn't you do the same thing again

01:33

well remember that twenty dollars you loaned your buddy Eric that he never [Person loaning 20 dollars to friend Eric

01:37

paid back well how eager are you going to be to hook him up with another twenty

01:41

especially since you'd only be feeding his betting on frog fighting habit yeah [Eric betting money on frog fighting]

01:46

not so much so long Eric you'll get the help you need!

Up Next

Finance: What is a 1099?
0 Views

What is a 1099? A 1099 is a tax form that comes from an employer. It states how much income an employee has made and the employee is able to use th...

Find other enlightening terms in Shmoop Finance Genius Bar(f)