Comment, question or quotation of the day

17-06-2019 : Question from one of our follower: If there are so many advantages with tap issues, why is it not used all the time frequent issuers are interested in tap issues?

As a reminder a tap issue is a new issue of a bond with the same characteristic than another bond issued a while ago, sold at the market price and which enlarges the size of the initial issue.   When you are not a frequent issuer, you may only issue a bond every 2-4 years because your financing needs are not that high. Having issued 3 years ago a 5-year bond, either you tap your initial issue but the maturity of the new bond will be 5 - 3 = 2 years which is pretty short and may create a future liquidity problem in your balance sheet if you finance long term capex with the proceeds; or you issue a new bond for 5 or 7 years for example. Most unfrequent issuer will choose the latter option and will not tap their initial bond.   For frequent issuers like governments, large corporates, etc. that issue bonds every quarter or semester, this is less of a problem, at least for the first years after the issue of a long term bond. They can do tap issues several times in a row, but after a while, they will stop for this liquidity problem as the maturity of the initial bond is fixed and cannot be changed.   Have a nice day    

14-06-2019 : quote of the day

“If you're not failing every now and again, it's a sign you're not doing anything very innovative.” Woody Allen  



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The Vernimmen.com Letter

Number 120 of April 2019

News : Finance: green, sustainable and responsible? (2/2)

Statistics : French government bond yields since . . . 1752

Research : Spectacular deleveraging

Q&A : Can a growth rate to perpetuity be negative?

COMMENTS : Comments posted on Facebook