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Why do you think bonds are an especially good deal for the issuer? Even more than SPACS? What kind of bonds are you referring to? Gov or Corp?

by HFguy 5y ago

cultofmetatron 5y ago
its instant money for the government that they pay a low rate on over a long period. OF COURSE its good for them!
vmception 5y ago
Both. But only for the credit worthy, which is determined by the market. They all rely on new money from investors to pay back the old one. There is a word for that, but it doesn't matter. The investors rely on assurances that their investment could be paid back from other sources. In practice though they just use new debt from new investors to payoff the old one to old investors. The remaining proceeds can and are used for anything with no transparency. But there doesn't need to be, as long as investors are paid back. Credit markets are very misunderstood (Bonds, Credit, High Yield, Junk, Fixed income are basically synonyms, there are many subsections of this market and regional ones around the globe). People just think they're boring and don't take a second look.
- jldugger 5y ago
  > In practice though they just use new debt from new investors to payoff the old one to old investors. One particularly interesting idea I've heard bandied about is to eliminate the rollover risk this represents by allowing the issue of perpetuities. Obviously repayment risk remains, as Evergrande currently reminds us.
  - vmception 5y ago
    So the issuer just pays interest forever until it happens to be paid off? Similar to how a credit card is paid off? Or line of credit? That’s kind of interesting, crowd invested credit lines. Doable now, only by investing in a lending corporation, but not on the open market. CREAM Finance’s Ironbank in the defi/open finance space is attempting something like that, where protocols get a credit limit and can borrow to finance their operations. Interest payments shared with investors.
    - jldugger 5y ago
      > So the issuer just pays interest forever until it happens to be paid off? Well, by definition perpetuities are never paid off. You could just buy your debt back on the open market though. I'm not a lawyer, so IDK if there's any interactions with "Dead hand" rules in the area based on a brief review of wikipedia[1], similar to 99 year leases or whatever motivated this potential disaster[2]. [1]: https://en.wikipedia.org/wiki/Rule_against_perpetuities https://en.wikipedia.org/wiki/Rule_against_perpetuities [2]: https://www.latimes.com/business/story/2019-08-09/etf-spy-longevity-rests-on-11-millennials-lifespans https://www.latimes.com/business/story/2019-08-09/etf-spy-lo...

Why do you think bonds are an especially good deal for the issuer? Even more than SPACS? What kind of bonds are you referring to? Gov or Corp?

by HFguy 5y ago

Why do you think bonds are an especially good deal for the issuer? Even more than SPACS? What kind of bonds are you referring to? Gov or Corp?

cultofmetatron 5y ago

its instant money for the government that they pay a low rate on over a long period. OF COURSE its good for them!

vmception 5y ago

Both. But only for the credit worthy, which is determined by the market. They all rely on new money from investors to pay back the old one. There is a word for that, but it doesn't matter. The investors rely on assurances that their investment could be paid back from other sources. In practice though they just use new debt from new investors to payoff the old one to old investors. The remaining proceeds can and are used for anything with no transparency. But there doesn't need to be, as long as investors are paid back. Credit markets are very misunderstood (Bonds, Credit, High Yield, Junk, Fixed income are basically synonyms, there are many subsections of this market and regional ones around the globe). People just think they're boring and don't take a second look.

jldugger 5y ago
> In practice though they just use new debt from new investors to payoff the old one to old investors. One particularly interesting idea I've heard bandied about is to eliminate the rollover risk this represents by allowing the issue of perpetuities. Obviously repayment risk remains, as Evergrande currently reminds us.
- vmception 5y ago
  So the issuer just pays interest forever until it happens to be paid off? Similar to how a credit card is paid off? Or line of credit? That’s kind of interesting, crowd invested credit lines. Doable now, only by investing in a lending corporation, but not on the open market. CREAM Finance’s Ironbank in the defi/open finance space is attempting something like that, where protocols get a credit limit and can borrow to finance their operations. Interest payments shared with investors.
  - jldugger 5y ago
    > So the issuer just pays interest forever until it happens to be paid off? Well, by definition perpetuities are never paid off. You could just buy your debt back on the open market though. I'm not a lawyer, so IDK if there's any interactions with "Dead hand" rules in the area based on a brief review of wikipedia[1], similar to 99 year leases or whatever motivated this potential disaster[2]. [1]: https://en.wikipedia.org/wiki/Rule_against_perpetuities https://en.wikipedia.org/wiki/Rule_against_perpetuities [2]: https://www.latimes.com/business/story/2019-08-09/etf-spy-longevity-rests-on-11-millennials-lifespans https://www.latimes.com/business/story/2019-08-09/etf-spy-lo...