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Comment by panarky | Hacker News Reader

The bonds pay 5.3% of their $1000 face value in interest every year, or $53.

You can buy this bond for $890, so the effective interest rate is actually 53 / 890 = 5.96% per year.

The fact that the price of the bonds is unchanged indicates that Tesla's earnings report didn't cause any change in market expectations of the company's ability to repay the bonds in full.

The price could drop to, say, 79 cents on the dollar if there's a greater probability that Tesla goes bankrupt and the bonds won't be repaid.

Bond prices also fall when market interest rates increase since that $53 per year isn't as competitive if other investments yield more.

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Thanks for your explanation, let me see if I understand.

They promise to give $1,000 in some years, plus $53 per annum until that happens. That promise is currently worth $890. But if people were worried about the repayments, that might fall to $790. So they get less money for taking on the same debt.

Have I understood?

What are the rates at companies like Apple or Exxon?

> What are the rates at companies like Apple or Exxon?

Anytime they issue a new bond, figures change so difficult to give a straight answer. For Apple, bonds typically range around 3/3.5% yield. And prices of the bond usually stay above 90 cents on the dollar, AFAIK (not an expert)

Apple has bonds that pay 3.85% that mature in 2043.

They're currently trading at about 95 cents on the dollar, for an effective yield of 4.05%.

There's nearly zero risk that Apple will default. Their bonds sell at a discount because market interest rates have increased since the bonds were issued, making them worth less.

Note that Tesla's bonds yield almost a full percentage point more than Apple's bonds, which reflects Tesla's higher probability of default.

But if investors were really worried about default, they'd demand a lot more than an extra 1%.

See --> https://imgur.com/a/OLKqgga

It's worth noting that a 2043 bond is a very very different beast to a 2025 bond. The further in the future maturity happens, the more risk there is of a change in circumstance which results in default.

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