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Bonds and other debt instruments in euro


This paper describes the legal framework, calculation methods and standards used for different types of medium and long term bonds. It gives an overview of all kinds of fixed and floating rate instruments available on the international bond market and more specifically in France.
To help understanding bond pricing and interest computation, this document defines different types of rates (nominal interest rate, capitalized, equivalent, zero-coupon) and details international standards in terms of day count.
Some examples of Macaulay Duration, modified duration and convexity calculation show how interest rate and bond price interact and how to hedge a bond portfolio to price changes or how to manage assets/liabilities mismatch.
Whereas each country usually uses its own issuing process, the introduction of a single currency into the Eurozone led to modernization and harmonization amongst bond types (currencies, STRIPS, indexed on inflation, etc.) and the European bond market benefited from the major issuers’ experience (mainly Germany, Italy and France).
With a focus on the medium and long term French bond market (OAT and BTAN), this note explains how to calculate clean price, dirty price and accrued interest of a bond but also how to price STRIPS
While sovereign issuers can either issue bonds through syndication or auction (via their Primary Dealers), non-sovereign issuers such as supranational, local authorities, corporate or financial institutions should only use the syndication process. Because the bond market knew a high growth and is often a privileged choice to raise fund, non-sovereign issuers increasingly set up EMTN or ECP programs to avoid the burden of “stand alone” documentation.
In a last part, this paper deals with the short term bond market. It then focuses on French TCN (Titres de Créances Négociables), which lead the Eurozone short term market.



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last update 02 June 2020