Bonds

💸 Bond Price Terminology

🔹 Face Value / Par Value

• The amount the issuer promises to repay at maturity (usually R100 or R1,000).

• It’s the baseline used for calculating interest and prices.

🔹 Price

• The current market value of the bond, usually expressed as a percentage of face value.

• Example: A bond trading at 95 means R95 for every R100 of face value.

🧼 Clean Price

• The quoted price of a bond excluding accrued interest.

• This is the standard price shown on trading systems.

• 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

• The actual amount the buyer pays — includes the clean price + accrued interest.

• Also called all-in price, especially in retail contexts.

📌 Example:
Clean price = R98
Accrued interest = R1.50
Dirty price = R99.50

🧮 Accrued Interest

• Interest earned by the seller but not yet paid (between the last coupon and trade date).

• Calculated as:

  Accrued Interest = (Coupon Rate × Days Since Last Payment) / 365 (or 360)

🧠 Summary Table of Price Terms

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:

• Commonly short-term instruments (e.g., commercial paper, treasury bills).

• No periodic interest payments (zero-coupon).

• Return is the difference between the purchase price and face value.

• Listed with implied yield or discount margin.

• 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:

• Most common type of listed bond.

• Predictable cash flows make it easier to price and trade.

• Used by corporate and government issuers.

• 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:

• Reduces interest rate risk.

• Useful in rising interest rate environments.

• Less price volatility than fixed bonds.

• 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:

• Protects investors against inflation.

• The principal and/or coupon increases with the index.

• 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: