Types of debenture prices

Debentures are considered a fixed income investment. However, the truth has to be told: fixed income is not fixed, it varies. Even the most traditional investments in fixed income, such as government bonds , have their market price fluctuating, and debentures are no different.

This occurs because private bonds have two prices: the market price and the Unit Price PAR . I'll try to explain using a concept from our everyday life, let's imagine that you want to sell your car, one of the first steps to take is to check the price of the vehicle in question in the FIPE table, this will provide a reference value. However, depending on the situation, you can sell your car at a price higher or lower than the listed price. Therefore, your car has a list reference value and a market value. Something similar happens with debentures .

Updated Nominal Value (VNA)

The VNA is nothing more than the value of the debenture restated from the day of its issuance until today, according to its respective index. Below we have the VALE29 debenture that I used as an example in another article . As we can see, in the remuneration field on the ANBIMA website, it is corrected for inflation ( IPCA ).

Figure 1: Characteristics of the debenture - Source: ANBIMA

On the issue date of 09/14/2015, the Nominal Issue Value of this debenture is R$1,000.00. As this is a security linked to inflation, we just need to correct this value until today. The good news is that the ANBIMA website already provides us with the VNA, which as we can see is at R$ 1,482.28. However, if you want to manually calculate the VNA I leave the link here for another article.

Unit Price PAR

With the Updated Nominal Value (VNA) in hand, we can now calculate the PAR unit price, which is nothing more than adding to the VNA the interest factor established on the issue date.

Figure 2: VALE29 Debenture Price - Source: ANBIMA

As we can see, the PU PAR is always greater than the VNA, as the PU PAR includes “within it” the coupon that will be paid, in the case of this debenture, on August 15th. Therefore , the PU PAR is the value of the debenture.

Note that the ANBIMA website also provides us with the PU Par directly, exempting us from the math we would need to do to arrive at this value. But if you intend to do it manually, I leave the link here for a more technical article.

Market price.

It is true that the Market Price fluctuates around the PAR Price of the debenture , and its behavior is unpredictable and dependent on the mood of investors. Generally, news in the macroeconomic sphere (politics and economics) and in the microeconomic spheres (Information relevant to the issuing company's health) have an enormous weight on investor sentiment.

Figure 3: Market Price x PAR Price Source: ANBIMA

As we can see, the market price represented by the green line orbits around the PU PAR , represented by the blue line, sometimes being traded at prices higher than the reference price and sometimes being traded at lower prices. However, we noticed that as the maturity date of the security approaches (08/15/2022) the market price converges to the PAR Price, since at maturity all investors will receive the PAR price.

Therefore, if the investor carries his debenture until maturity , he will be immune to market price variations, receiving the PAR Price . However, if the investor adopts a more speculative posture, exiting before the stipulated maturity, he will then be available to the market's mood, receiving the market price.

To think about

• If fixed income varies, what could be fixed?

• How variable are bond prices?