Can Synthetic Debt Give Authentic Savings?

Leib, Barclay T.
September 2001
Financial Executive;Sep2001, Vol. 17 Issue 6, p52
Academic Journal
The article examines whether synthetic debt can give authentic savings. Putable/callable reset bonds are popular because of a combination of low interest rates and high implied volatilities in the fixed-income option market. Another contributing factor has been the relatively large swap premiums for long-dated corporate debt that many treasurers are unwilling to fund. One of the most significant reasons putable/callable debt is attractive is because the comparative cost of funds once an investor incorporates the premium receipt on the embedded short call option.


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