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Ronnie36
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Posts: 5
Joined: February 11th, 2015, 8:53 am

Bond Pricing (Illiquid Asset)

May 17th, 2019, 1:49 pm

Hi,

Wanted to ask a question on real world pricing of a bond, specifically an Illiquid bond (e.g. a Bond that due to sanctions lets say has very limited, if any trading during the course of the month).  When it comes to Month End, we price the bond following an in-house pricing hierarchy (Bloomberg BGN, MarkIT, Reuters etc...)

However, at month end, given the month is deemed illiquid, given there are no transactions and that BGN, MarkIT, Reuters etc, do have prices BUT are stale from the previous month, I want to take a different approach to pricing this illiquid bond.  We also assume the Bond is defaulted, so traditional discounted cash flow analysis holds no weight here.  Broker quotes are only indicative so lets assume they hold little weight also.  Lets call this Bond 9.25% Kaznia 2028s

How may one, try and price this bond?  Could we use comparables (say another Kaznia bond which has traded in the month), a proxy, or any sort of model to derive a price for my Kaznia 28s? If so, could you provide a simple numerical example of how this would work?

Many Thanks and much appreciated

Ronnie
 
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fyvr
Posts: 12
Joined: November 15th, 2015, 3:10 pm

Re: Bond Pricing (Illiquid Asset)

Yesterday, 6:55 pm

If the bond has defaulted it must trade pari passu to any other bond of equivalent seniority (most likely senior unsecured). If you can find one price, of any bond anywhere, you’ve got the price of all of them .
 
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bearish
Posts: 4571
Joined: February 3rd, 2011, 2:19 pm

Re: Bond Pricing (Illiquid Asset)

Yesterday, 11:29 pm

Not necessarily. While that would (or at least should) be true for corporate bonds subject to the US bankruptcy code, it is most definitely not the norm in sovereign defaults. 
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