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From: franka@mmintl.UUCP (Frank Adams)
Newsgroups: net.invest
Subject: Re: zero-coupon bonds
Message-ID: <897@mmintl.UUCP>
Date: Mon, 16-Dec-85 15:11:15 EST
Article-I.D.: mmintl.897
Posted: Mon Dec 16 15:11:15 1985
Date-Received: Fri, 20-Dec-85 01:51:05 EST
References: <29100002@ISM780B.UUCP> <2384@amdahl.UUCP>
Reply-To: franka@mmintl.UUCP (Frank Adams)
Organization: Multimate International, E. Hartford, CT
Lines: 35

In article <2384@amdahl.UUCP> mat@amdahl.UUCP (Mike Taylor) writes:
>> 	I am interested in zero-coupon bonds but have no idea how to
>> find them listed in the average newspaper business section. I would
>> also like some information on how to evaluate them for relative safety
>> and return. Any pointers to reference material are also welcome.
>
>I haven't seen much in the way of bond listings in regular newspapers.
>I user Barron's. Zero-coupon bonds are listed in with the regular bond
>listings - the coupon rate is zero and they usually are designated "zr."
>They are rated by the bond services (Moody's, etc.) for safety and
>return is easily calculated, by seeing what rate discounts the bond's
>face value over its remaining term to its current price. Many calculators
>will do this directly.

Just one additional note.  As with any bond, there are two sorts of risk
associated with zero-coupons: the issuer's reliability, and the market
risk.  The latter is a function of interest rates: when rates go down,
the value of you bond goes up, and vice versa.  This risk is much larger
for a zero coupon than for other bonds.  A zero coupon can halve or double
in value relatively easily.  The amount of this risk depends on the time
to maturity: the longer to maturity, the more volitile.

Reliability of the issuer is a bit more important for a zero as well.  If
the issuer of an ordinary bond goes under, you at least have the coupons
collected before this happens.  With a zero, you have nothing.

Especially never buy a zero-coupon except from a reliable broker, issued
by a well-known company or governmental body.  This is good advice
generally, but especially important with zero-coupons, since anyone
trying to pull something has a few decades to get away with it in.  This
is less of a problem in the U.S., but a number of European banks discovered
that they had lots of counterfeit zero-coupon bonds on their hands.

Frank Adams                           ihpn4!philabs!pwa-b!mmintl!franka
Multimate International    52 Oakland Ave North    E. Hartford, CT 06108