0
$\begingroup$

Why would a bonds discount margin widen but its price increase? Shouldn't the price be falling when margins are widening?

Looking at the bond pricing formula, if the price is higher doesn't the rate of return have to be lower? What am I missing?

Improve this question
$\endgroup$
1
  • $\begingroup$ Did forward rates change, i.e. the shape of the yield curve? Discount margin uses the current floating rate and flat yield (future coupons set at current value of the reference rate). Forward yield is a better measure of expected return. $\endgroup$
    – Bond wiz
    Commented Jul 16, 2020 at 13:59

1 Answer 1

Reset to default
0
$\begingroup$

Is it trading below par ? If yes it can converge to par while keeping the same DM.

Improve this answer
$\endgroup$
1
  • $\begingroup$ No it is pricing at 100.05 $\endgroup$
    – NewInvestor
    Commented Feb 17, 2020 at 20:33

Not the answer you're looking for? Browse other questions tagged or ask your own question.