There is no guarantee as to how much money is left to repay bondholders. For example, following an accounting scandal and a Chapter 11 bankruptcy of telecommunications giant Worldcom in 2004, 35.7 cents were paid on the dollar.  In the event of bankruptcy involving a reorganization or recapitalization as opposed to liquidation, bondholders may ultimately reduce the value of their bonds, often by exchanging a small number of newly issued bonds. Historically, another emissions practice was for the lending public authority to issue bonds over a period of time, usually at a fixed price, based on market conditions for quantities sold on a given day. This is called the tap or bond-tap show.  Bonds are mainly bought and traded by institutions such as central banks, sovereign wealth funds, pension funds, insurance, hedge funds and banks. Insurance companies and pension funds have debts that essentially include fixed amounts to be paid on fixed dates. They buy bonds to meet their debts and may be constrained by law. Most people who want to hold bonds do so through bond funds. Yet in the United States, nearly 10% of the outstanding bonds are held directly by households. Changes in the price of a loan have an immediate effect on the investment funds that hold these bonds.
If the value of the bonds in their trading portfolio decreases, the value of the portfolio also decreases. This can be detrimental to professional investors such as banks, insurance companies, pension funds and asset managers (whether the value is immediately “marked” or not). If there is a chance that an individual bondholder will have to sell and “pay” his bonds, interest rate risk could become a real problem, and conversely, bond market prices would rise if the prevailing interest rate fell, as was the case between 2001 and 2003. One way to quantify the interest rate risk of a loan is its lifetime. Efforts to control this risk are called immunization or protection. The coupon is the interest rate that the issuer pays to the bearer. For fixed-rate bonds, the coupon is fixed for the duration of the loan. For variable rate bonds, the coupon varies throughout the life of the loan and is based on the movement of a money market benchmark rate (often LIBOR). Bond markets may also differ from equity markets because, in some markets, investors sometimes do not pay brokerage commissions to traders with whom they buy or sell bonds. On the contrary, traders derive income from the spread or the difference between the price at which the trader buys a bond from an investor – the price of the offer – and the price at which he sells the same loan to another investor – the price of the question or offer. The offer/offer spread represents the total cost of the transaction related to the transfer of a loan from one investor to another.
For portfolio management and performance measurement, there are a number of bond indices, similar to the S-P 500 or Russell index for equities. The most common U.S. benchmarks are Bloomberg Barclays US (formerly Lehman Aggregate), Citigroup BIG and Merrill Lynch Domestic Master. Most indices are parts of larger index families that can be used to measure global bond portfolios or can be subdivided by maturity or sector for the management of specialized portfolios. The issue price at which investors buy the bonds when they are first issued is generally equal to the nominal amount. The net proceeds received by the issuer are therefore the lower emission price of the issuance costs.
Viajes Bojorquez 2015 Diseño y Desarrollo por Hydis