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This IPO story is struggling. There have been several recent examples of public confidence in the business model collapsing post IPO, but the WSJ and others are

This IPO story is struggling. There have been several recent examples of public confidence in the business model collapsing post IPO, but the WSJ and others are reporting on this so heavily as it looks like we’re now seeing public confidence starting to fall apart before the IPO of an ultra-unicorn. Get your popcorn ready. Someone might buy these bonds at their deflated prices because WeWork still needs to pay interest on that loan and if its still around will eventually pay back the original loan, but for now this is more evidence of market skepticism of the future health of WeWork financially. People are willing to just take a hit now and get out.

whatshisface 7y ago
There isn't an institution in the world that could sell an IOU $100 for $100, not even the US Treasury. For example, if you bought a 1-year dated IOU for $100 from the US Treasury today, it would cost only $98.30. Edit: this comment was written in response to the parent before it was edited to remove any trace of what was being replied to.
- chadash 7y ago
  German bond yields are currently negative. That means that you pay them more than $100 for every $100 you get back. See https://www.bloomberg.com/markets/rates-bonds/government-bonds/germany https://www.bloomberg.com/markets/rates-bonds/government-bon...
  - whatshisface 7y ago
    There is actually an important detail here: that's €101, not $101. If you want to transact in dollars there would be no reason not to deal with the US Treasury which is even safer than the German government (Germany can't print Euros to fulfill its debt obligations).
    - chadash 7y ago
      Fine, so take Japan who also has negative yields on short term bonds and can print their own currency. And the US Treasury can print money, but it's got it's own issues with a congress who occasionally has members who grandstand and threaten to default on debts. Meanwhile, Germany runs a surplus budget. I'm not saying that US Bonds aren't extremely safe, but it's hard to know if German bonds are really less safe. The market seems to consider them extremely safe. The biggest risk with German bonds for a buyer who transacts in dollars is currency fluctuation But I agree with your sentiment with regard to the original comment you responded to (which seems to have been edited now).
      - treis 7y ago
        >hard to know if German bonds are really less safe It's more of a currency based risk. You're probably right that Germany is as safe of a bet (if not more) to pay back their bonds than the US is. The question is how much 100 Euro is going to be worth in 10 year.
- sephamorr 7y ago
  Plenty of sovereign debt interest rates are below zero, so you'd pay $101 for $100 in a year's time. Whether or not this is sane economic policy is a question though.
  - deleted 7y ago
    [deleted]
  - tomatocracy 7y ago
    Many large corporates can issue at or below zero in Euros in the current market too, or alternatively issue in very long tenors (30-50+ years) at 1% or less. It’s insane.
- deleted 7y ago
  [deleted]
- zpwm 7y ago
  US Treasury 30 year bonds are currently priced over $102.... Calling a bond an IOU doesn't really make sense because you neglect the coupon payments (annual interest). So even though you're paying over $100 to get paid back a $100 principal the yield is still positive because of those coupon payments. Negative yield bonds also exist and are bought for various reasons. "There isn't an institution in the world that could sell an IOU $100 for $100" is not true
  - whatshisface 7y ago
    That's a good point, but I think you can get one-year bonds with an annual coupon: that means you get one payment a year from now. So bonds in general aren't IOUs, but there is at least one bond that works like one.
    - zpwm 7y ago
      You are right that would be an example of a bond/bill with a 0% coupon rate. There are still weird negative interest rate conditions where it makes sense to buy an IOU for more than you get back (not that I understand those conditions :) )
      - aeorgnoieang 7y ago
        I think the 'weird' conditions are some combination of there not being other 'riskless' (or less risky) investments and certain institutions being legally required to hold a certain number or amount of 'riskless' or highly-rated (according to the relevant regulators) instruments.
- outside1234 7y ago
  This is true for "zeros" which are bonds that pay no interest (eg. treasury notes) but instead pay a premium to the issuing price on maturity but not for bonds in general, which is what WeWork is issuing here. When the US Treasury (or WeWork) sells a bond at $100 (and it almost always does), it is based on a face interest rate (say 3%). This interest is fixed (eg. the bond will always pay $3). If prevailing interest rates rise to 4%, then the price of that bond will drop to a price such that the interest the bond pays ($3 per $100) ends up being a 4% yield. It also works in the opposite direction and this is how you end up with bond prices above $100. The price has to swing higher for that $3 per $100 face value to have a yield less than 3%. As an aside, this is also why longer term bonds are riskier than shorter term bonds, you can lose significant amounts of money if interest rates shift higher over 10-15 year timeframes because the market price of the bond will have to drop to make it competitive in secondary markets.
- seanhunter 7y ago
  That's not how the bond market works (for the most part). Lots of bonds (including some risky bonds) price above par but will have a correspondingly low interest rate such that their yield is in line with other similar bonds. Bonds have a face value (which you get paid at maturity) and a coupon (interest payment calculated as either a fixed percentage of face or as a spread over an underlying rate * face)[1]. Both of those components matter to investors and factor into the so-called "yield to maturity" of the debt. The bond price dropping means that the secondary market is demanding a higher yield to maturity on the debt. The main drivers of that price are the underlying risk-free rate of interest (which compensates investors for the difference in utility between having cash now and having cash in the future and essentially arbs out between all the different risk-free or near-risk-free instruments they can invest in) and the credit spread (which compensates them for the likelihood of default and arbs out with other instruments of similar riskiness and the prices of things like CDSs). In the 1yr T-bill example, almost all of the price discount you are quoting is about the risk-free rate of return. So say the rates were at 4% when a 10yr note was issued, we are now in the final year and rates have gone up since then, then the price of the bond would drop so that investors get a yield-to-maturity on this bond that is approximately the same as other instruments of equivalent maturity. The WeWork example is going to be driven by the credit spread - how likely WeWork's is to default and how much investors would be likely to recover in that event. The price going down is to do with the credit spread widening and therefore investors demanding a higher interest rate to compensate. [1]I'm simplifying a lot here given all the weird and wonderful types of bonds you can get.
whatok 7y ago
Quite likely is a vast overstatement. They're yielding a slight bit more than they did on issue.
JackFr 7y ago
These bonds have traded below par for a year. The S-1 somehow gave them a pop. If the S-1 is shelved presumably they'll go back to where they were.
- whatok 7y ago
  The S1 gave them a pop because there was a disclosure that they bought back 33mm.

whatshisface 7y ago

There isn't an institution in the world that could sell an IOU $100 for $100, not even the US Treasury. For example, if you bought a 1-year dated IOU for $100 from the US Treasury today, it would cost only $98.30. Edit: this comment was written in response to the parent before it was edited to remove any trace of what was being replied to.

chadash 7y ago
German bond yields are currently negative. That means that you pay them more than $100 for every $100 you get back. See https://www.bloomberg.com/markets/rates-bonds/government-bonds/germany https://www.bloomberg.com/markets/rates-bonds/government-bon...
- whatshisface 7y ago
  There is actually an important detail here: that's €101, not $101. If you want to transact in dollars there would be no reason not to deal with the US Treasury which is even safer than the German government (Germany can't print Euros to fulfill its debt obligations).
  - chadash 7y ago
    Fine, so take Japan who also has negative yields on short term bonds and can print their own currency. And the US Treasury can print money, but it's got it's own issues with a congress who occasionally has members who grandstand and threaten to default on debts. Meanwhile, Germany runs a surplus budget. I'm not saying that US Bonds aren't extremely safe, but it's hard to know if German bonds are really less safe. The market seems to consider them extremely safe. The biggest risk with German bonds for a buyer who transacts in dollars is currency fluctuation But I agree with your sentiment with regard to the original comment you responded to (which seems to have been edited now).
    - treis 7y ago
      >hard to know if German bonds are really less safe It's more of a currency based risk. You're probably right that Germany is as safe of a bet (if not more) to pay back their bonds than the US is. The question is how much 100 Euro is going to be worth in 10 year.
sephamorr 7y ago
Plenty of sovereign debt interest rates are below zero, so you'd pay $101 for $100 in a year's time. Whether or not this is sane economic policy is a question though.
- deleted 7y ago
  [deleted]
- tomatocracy 7y ago
  Many large corporates can issue at or below zero in Euros in the current market too, or alternatively issue in very long tenors (30-50+ years) at 1% or less. It’s insane.
deleted 7y ago
[deleted]
zpwm 7y ago
US Treasury 30 year bonds are currently priced over $102.... Calling a bond an IOU doesn't really make sense because you neglect the coupon payments (annual interest). So even though you're paying over $100 to get paid back a $100 principal the yield is still positive because of those coupon payments. Negative yield bonds also exist and are bought for various reasons. "There isn't an institution in the world that could sell an IOU $100 for $100" is not true
- whatshisface 7y ago
  That's a good point, but I think you can get one-year bonds with an annual coupon: that means you get one payment a year from now. So bonds in general aren't IOUs, but there is at least one bond that works like one.
  - zpwm 7y ago
    You are right that would be an example of a bond/bill with a 0% coupon rate. There are still weird negative interest rate conditions where it makes sense to buy an IOU for more than you get back (not that I understand those conditions :) )
    - aeorgnoieang 7y ago
      I think the 'weird' conditions are some combination of there not being other 'riskless' (or less risky) investments and certain institutions being legally required to hold a certain number or amount of 'riskless' or highly-rated (according to the relevant regulators) instruments.
outside1234 7y ago
This is true for "zeros" which are bonds that pay no interest (eg. treasury notes) but instead pay a premium to the issuing price on maturity but not for bonds in general, which is what WeWork is issuing here. When the US Treasury (or WeWork) sells a bond at $100 (and it almost always does), it is based on a face interest rate (say 3%). This interest is fixed (eg. the bond will always pay $3). If prevailing interest rates rise to 4%, then the price of that bond will drop to a price such that the interest the bond pays ($3 per $100) ends up being a 4% yield. It also works in the opposite direction and this is how you end up with bond prices above $100. The price has to swing higher for that $3 per $100 face value to have a yield less than 3%. As an aside, this is also why longer term bonds are riskier than shorter term bonds, you can lose significant amounts of money if interest rates shift higher over 10-15 year timeframes because the market price of the bond will have to drop to make it competitive in secondary markets.
seanhunter 7y ago
That's not how the bond market works (for the most part). Lots of bonds (including some risky bonds) price above par but will have a correspondingly low interest rate such that their yield is in line with other similar bonds. Bonds have a face value (which you get paid at maturity) and a coupon (interest payment calculated as either a fixed percentage of face or as a spread over an underlying rate * face)[1]. Both of those components matter to investors and factor into the so-called "yield to maturity" of the debt. The bond price dropping means that the secondary market is demanding a higher yield to maturity on the debt. The main drivers of that price are the underlying risk-free rate of interest (which compensates investors for the difference in utility between having cash now and having cash in the future and essentially arbs out between all the different risk-free or near-risk-free instruments they can invest in) and the credit spread (which compensates them for the likelihood of default and arbs out with other instruments of similar riskiness and the prices of things like CDSs). In the 1yr T-bill example, almost all of the price discount you are quoting is about the risk-free rate of return. So say the rates were at 4% when a 10yr note was issued, we are now in the final year and rates have gone up since then, then the price of the bond would drop so that investors get a yield-to-maturity on this bond that is approximately the same as other instruments of equivalent maturity. The WeWork example is going to be driven by the credit spread - how likely WeWork's is to default and how much investors would be likely to recover in that event. The price going down is to do with the credit spread widening and therefore investors demanding a higher interest rate to compensate. [1]I'm simplifying a lot here given all the weird and wonderful types of bonds you can get.

whatok 7y ago

Quite likely is a vast overstatement. They're yielding a slight bit more than they did on issue.

JackFr 7y ago

These bonds have traded below par for a year. The S-1 somehow gave them a pop. If the S-1 is shelved presumably they'll go back to where they were.

whatok 7y ago
The S1 gave them a pop because there was a disclosure that they bought back 33mm.