What determines "going" interest rates and premium/discounts

becker89 · #1 (**permalink**) 03-01-2012, 12:18 PM

I know a lot of people would say to look at that the 10 yr treasury note and the credit risk of the company, but my question here is this: If a triple A company has a 10 yr bond issue with a coupon rate that is significantly higher than the treasury rate, why would it immediately not sell for a premium in the secondary market?

Unbiased · #2 (**permalink**) 03-01-2012, 12:31 PM

A lot of times, they do.

Don't confuse corporate credit ratings with sovereign debt ratings. Sovereign debt is viewed as more secure, as they have taxing authority and have a much smaller chance of going bankrupt. Plus, there can sometimes be tax incentives for the holders of sovereign debt related to the dividends paid.

maryjthompson · #3 (**permalink**) 04-23-2012, 09:05 AM

The price of investment quality bonds are usually linked to interest rates. And there is an inverse correlation between interest rates and bond prices.

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