Hot debt periods
Encyclopedia
In the theory of corporate finance
, the name of Hot debt period is given to periods of time when new debt
issues by corporations are very common, and generally coincide with periods in which the interest rate
is low, and the risk premium
on corporate debt issues is low, giving these new bonds
high prices. It is the debt equivalent of hot equity periods
which generally refers to periods where many firms are making IPO's.
Corporate finance
Corporate finance is the area of finance dealing with monetary decisions that business enterprises make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to maximize shareholder value while managing the firm's financial risks...
, the name of Hot debt period is given to periods of time when new debt
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
issues by corporations are very common, and generally coincide with periods in which the interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
is low, and the risk premium
Risk premium
A risk premium is the minimum amount of money by which the expected return on a risky asset must exceed the known return on a risk-free asset, in order to induce an individual to hold the risky asset rather than the risk-free asset...
on corporate debt issues is low, giving these new bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
high prices. It is the debt equivalent of hot equity periods
Hot equity periods
In the study of financial markets Hot equity periods or Hot Issue Periods are periods of time in which many firms perform initial public offering of their equity. Firms in modern economies often finance themselves by the issuance in public markets of shares, also called equity...
which generally refers to periods where many firms are making IPO's.