medium · Debt Capital Markets pricing-yields-curve
If an FRN is trading at a 'clean price' of 99.00, why is the Discount Margin (DM) used instead of simply citing the bond's Yield to Maturity (YTM)?
- The YTM only applies to government bonds, not corporate debt.
- The YTM cannot be calculated for an FRN because future coupons are unknown.
- The DM is always lower than the YTM, making the debt look cheaper to the issuer.
- The DM includes the risk-free rate, whereas YTM does not.
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