Credit · C6 · 8 min
The primary market and bond features
See how a new bond is sold, measure the small discount it is sold at, and say how a call or a put changes a bond’s spread.
In the news: “Orders four times the deal, priced 25bp tighter than first offered”: what a new-bond headline tells you.
The essentials
- Bookbuilding
- How banks sell a company’s new bond: they take orders over a few hours at a starting spread and tighten it as orders build. Orders four times the deal size can bring the spread 25 in from where it started.
- New-issue concession
- The extra spread a new bond pays over , read off the issuer’s existing bonds, to sell quickly. With 7-year bonds at +140bp and 10-year at +155bp, an 8-year is fair at +145bp; pricing at +155bp is a 10bp concession.
- Callable bonds
- Bonds the company can repay early at a set price, which it does when it can borrow more cheaply, so they pay more spread. Above the call price they are quoted on : the lower of to call and to maturity.
- Features and the spread
- Anything that favours the company or lowers recovery adds spread, such as a call or ranking behind other bonds. Anything that protects the investor lowers it, such as a put at 100 or security over assets.
- AT1
- Bank bonds that never mature and are written off or turned into shares if the bank’s capital runs too low. In March 2023 FINMA ordered about CHF 16bn of Credit Suisse AT1s written off, while shareholders still received UBS shares.
New-issue concession
concession = new bond’s spread − fair spread from the existing bonds
- fair spread
- read off the company’s existing bonds either side of the new bond’s maturity
How it works
1. Selling a new bond
When a company wants to borrow, say, £500m from investors, banks sell the bonds for it. They gather orders over a few hours at a starting spread, then lower the spread as orders pile up. This is .
2. Fair value from existing bonds
The company’s existing bonds show what it already pays: say +140bp for 7 years and +155bp for 10 years. A new 8-year bond sits a third of the way between them, so its fair spread is about 140 + 15 ÷ 3 = +145bp.
3. The new-issue concession
New bonds usually price a little wider than fair value, say at +155bp when fair is +145bp. That extra 10bp is the : the cost of selling a lot of bonds quickly. It grows when markets are nervous or many deals are coming at once.
4. Callable bonds
Some bonds let the company repay early at a set price: a . It calls when it can borrow more cheaply, which is just when investors would rather keep the bond. So investors want a higher spread for owning one.
5. Yield to worst
If a callable bond trades above its call price, assume the company will call it. Work out the yield to the call date and the , and quote the lower one: the .
6. Features that move the spread
Anything that helps the company, or lowers what you would get back in a default, adds spread: a call, or ranking behind other bonds. Anything that protects you lowers it: a put that lets you sell the bond back to the company at 100, or security over assets.
7. AT1: bank bonds that can be wiped out
Banks issue bonds: they never mature, and are written off or turned into shares if the bank’s capital runs too low. In March 2023 Swiss regulator FINMA ordered about CHF 16bn of Credit Suisse AT1s written off as UBS took the bank over, while shareholders still received UBS shares. In October 2025 a Swiss court ruled the write-off lacked a sufficient legal basis; FINMA appealed.
Worked example
A company’s 7-year bond trades at +140bp and its 10-year at +155bp. It sells a £500m 8-year bond, starting at +180bp. Orders reach £2bn and it prices at +155bp.
- Fair value for 8 years: 140 + (155 − 140) × 1 ÷ 3 = +145bp.
- Concession: 155 − 145 = 10bp.
- Tightening during bookbuilding: 180 − 155 = 25bp, because orders were four times the deal.
- If the bond later trades at fair value, holders gain about 10bp × a spread duration of 6.5 ≈ 0.65%.
A 10bp concession: the bond priced 25bp tighter than it started but still 10bp wide of fair value.
Check yourself
7 quick questions on the explanation above.
Practice
New numbers every set. Misses and guesses go into your review deck.
In the interview
Answer out loud in under a minute, then compare.
Why would an investor accept a callable bond?
What happened to Credit Suisse’s AT1 bonds in 2023, and why did it shock the market?
Why do new issues usually come cheap?
Remember
Concession = new spread − fair spread
New bonds pay a little over the issuer’s existing bonds to sell quickly, and every feature that favours the issuer adds to the spread.
Sources
- FINMA — FINMA press release on the write-down of Credit Suisse AT1 capital instruments (23 March 2023)
- Bank of England — Bank of England Statement: UK creditor hierarchy
- Swiss Federal Administrative Court — Unlawful write-off of AT1 capital instruments
- FINMA — FINMA to appeal partial decision of the Federal Administrative Court concerning AT1
Definitions and maths are standard textbook material; dated facts link to the sources above. Worked numbers are illustrative.