Bonds
💸 Bond Price Terminology
🔹 Face Value / Par Value
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The amount the issuer promises to repay at maturity (usually R100 or R1,000).
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It’s the baseline used for calculating interest and prices.
🔹 Price
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The current market value of the bond, usually expressed as a percentage of face value.
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Example: A bond trading at 95 means R95 for every R100 of face value.
🧼 Clean Price
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The quoted price of a bond excluding accrued interest.
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This is the standard price shown on trading systems.
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It reflects only the value of the bond itself — not the interest that has built up.
📌 Use case: Clean prices are used to compare bonds on an equal basis.
💰 Dirty Price / All-In Price
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The actual amount the buyer pays — includes the clean price + accrued interest.
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Also called all-in price, especially in retail contexts.
📌 Example:
Clean price = R98
Accrued interest = R1.50
Dirty price = R99.50
🧮 Accrued Interest
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Interest earned by the seller but not yet paid (between the last coupon and trade date).
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Calculated as:
🧠 Summary Table of Price Terms
| Term | Includes Accrued Interest? | Description |
|---|---|---|
| Face Value | N/A | Amount repaid at maturity |
| Price | Sometimes | General term for bond value |
| Clean Price | ❌ No | Bond value excluding accrued interest |
| Dirty Price | ✅ Yes | Price paid including accrued interest |
| All-In Price | ✅ Yes | Same as dirty price, often used in retail settings |
the fol]lowing are examples of bonds
CAT 1 - Discounted note
A bond issued below face value (i.e., at a discount) and repaid at par (100%) on maturity.
Exchange Context:
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Commonly short-term instruments (e.g., commercial paper, treasury bills).
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No periodic interest payments (zero-coupon).
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Return is the difference between the purchase price and face value.
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Listed with implied yield or discount margin.
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Price discovery is driven by interest rate expectations and liquidity.
📌 Example: Buy at R95, maturity at R100 → you earn R5 "interest".
CAT 2 - Fixed
A bond with a fixed interest (coupon) rate paid at set intervals (typically semi-annual or annual).
Exchange Context:
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Most common type of listed bond.
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Predictable cash flows make it easier to price and trade.
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Used by corporate and government issuers.
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Displayed with clean price (excluding accrued interest) and yield to maturity (YTM) on trading platforms.
📌 E.g., 8% fixed coupon, paid every 6 months.
CAT 3 - Floating
A bond where the coupon is tied to a benchmark rate (e.g., JIBAR, SOFR, Prime) plus a fixed spread.
Exchange Context:
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Reduces interest rate risk.
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Useful in rising interest rate environments.
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Less price volatility than fixed bonds.
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Coupons adjust on reset dates (monthly, quarterly).
📌 Example: “JIBAR + 150bps” resets every 3 months.
CAT 4 -Index
Typically refers to index-linked instruments, where return is linked to inflation, CPI, or another index.
Exchange Context:
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Protects investors against inflation.
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The principal and/or coupon increases with the index.
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Often used in inflation-linked retail savings or sovereign instruments (e.g., RSA Retail Bonds).
📌 Example: “CPI + 3%” → both capital and interest track inflation.
Summary Table:
| Category | Type | Pays Interest | Rate Type | Risk Type | Exchange Features |
|---|---|---|---|---|---|
| Cat 1 | Discounted Note | No | N/A (zero) | Low rate risk | Traded on yield, short-term |
| Cat 2 | Fixed Rate Note | Yes | Fixed | High rate risk | Clean price, YTM shown |
| Cat 3 | Floating Rate Note | Yes | Variable | Low/Moderate | Reset frequency & reference rate disclosed |
| Cat 4 | INTEX Note | Yes/Variable | Indexed | Inflation hedge | Requires CPI/index tracking |