1
$\begingroup$

Shorting a bond means borrow it form other and sell. It seems to me that this operation is the same as just simply issue a bond. Am I right? If yes, then why do we use "shorting" terminology for bonds? If no, why am I wrong. Thanks!

$\endgroup$
3
$\begingroup$

Two important difference are 1) the intention 2) the resulting position

Shorting a bond is usually with the intention to buy it back with hopefully a lower price. Your position is sensitive to the bond price changes.

Issuing a bond (usually an organization) is usually for raising funds. And you have no risks on bond price fluctuation and it will be redeemed on principle at maturity (assuming non-callable)

| improve this answer | |
$\endgroup$
1
$\begingroup$

When a bond is issued an entity $A$ creates a debt instrument and makes it available for sale.

When a bond is sold, $B$ sells an existing debt instrument to $C$ (who buys it). $A$ doesn't have to be any of the entities $B$ or $C$.

| improve this answer | |
$\endgroup$
  • $\begingroup$ Thank you for your answer. If $A$ agent issue and then sell the bond, it means that $A$ has the obligation to pay back cash flows generated by bond. The same obligation has $A$ if s/he short sale the identical bond. Doesn't this imply that those two strategies are the same? $\endgroup$ – sane Sep 27 '19 at 15:23
  • 1
    $\begingroup$ If you can borrow the bond for free and all goes well from a pure cash flow perspective: yes. But as Kola points out, the intention will be different. Also, the legalities in the case of a potential default of $A$ are different. $\endgroup$ – Bob Jansen Sep 27 '19 at 15:34

Not the answer you're looking for? Browse other questions tagged or ask your own question.