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Is it fair to say that one reason the bond market is so large is because of capacity and simplicity? The impression I get is that when you start talking in ter
by ethbro 7y ago
Is it fair to say that one reason the bond market is so large is because of capacity and simplicity?
The impression I get is that when you start talking in terms of $x0M+ US regular investment (e.g. on Monday, then again on Tuesday) stocks become a less viable option (due to liquidity and risk of orders moving the market).
Bonds also seem more simplified and standardized, in that there are fewer weird / unmodelable features in a given bond issue.
- H8crilA 7y agoBonds are actually more complex. Try understanding covenants on bonds, it is not easy. There are hedge fund strategies that rely on better (than market) understanding of the legalese, triggering weird cases of technical defaults (i.e. defaults other than through a lack of timely payment) and whatnot.
- ethbro 7y agoThe way I was looking at it... technically by owning a stock you're exposed to the risk of the entire corporate legal structure (e.g. board, bylaws) as well as operational structure. Compared to a bond, even one with esoteric clauses, that seems more complicated.
- H8crilA 7y agoWhen you have a bond you're exposed to the entire corporate structure too. What the board does affects you a lot. Except your contract is (sometimes) much more complicated. The primary reason why they want covenants is because credit holders do not get to influence management (except in Chapter 13, when they basically take over the company).