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Market
AGENDA
Introduction of Debt Market
Participants and products of debt
market
Few terms in Debt Market
Types of Bonds
Repo and Reverse Repo
Duration in Bond Market
Relation between YTM and Bond
Price
Maturity
Coupon rate
Principle
Yield to Maturity (YTM)
Current yield
borrower
Bonds
Debentures
Features
Maturity
Coupon
Principal
6
Modifying
Coupon
Cont.
Term to Maturity
Callable Bonds
Puttable Bonds
Convertible Bonds
Principal Repayment
Amortizing Bonds
Bonds with sinking fund
Provisions
Central
Government
Dated
Securities
2-20 Years
RBI,Banks,Insurance Co.,
PFs, MFs, PDs,
Central
Government
T-Bills
91/364
days
RBI,Banks,Insurance Co.,
PFs, MFs, PDs,Individuals
State
Government
Dated
Securities
5-10 Years
Banks,Insurance Co.,PFs.
PSUs
Bonds
5-10 Years
Corporates
Debentures
1-12 Years
Corporates,
PDs
Commercial
paper
3 months
to 1 Year
Banks
10
Certificates of
Deposit
3 months
to 1 Year
Banks, Corporates
Central Government
Securities: Bonds
Primary Issuance Process Auction
based
Enable Higher Auction Volumes
Broadening participation
Ensuring efficiency
Types of Auctions
Discriminatory / Uniform Price Auction
Yield / Price Based Auction
Participants
Banks, PFs, Insurance Co., PDs, MFs.
11
Cont..
Primary Dealers
Introduced in 1995 and at present
19
Act as underwriters and market
makers
To Strengthen Infrastructure
To divest responsibilities of RBI
To facilitate Open Market Operations
Eligibility
12
Cont.
Satellite Dealers
Second Tier in Trading and
Distribution
Provide a retail outlet
13
T - Bills
Short Term borrowing
Issued at discount
91 / 364 Days T Bills
Abolition of Ad Hoc T-Bills
Issuance Process through Auction
Banks and PDs
Non Competitive Bids
Calendar
91 days Weekly
250 Cr. Wednesday Thursday
364 days Fortnightly 750 Cr. Wednesday Thursday
14
T-Bills
Cut off Yields
Yield given Price=
((100-Price)*365/(Price*No. of days to maturity)
Price given Yield=
securities
PDs allowed to particiapte
SBI owns the largest chunk
Low risk weight of 20%
State Government Guaranteed Bonds
16
funds to 14 days
Banks and PDs allowed to borrow/lend
UTI, FI s, MF s, Corporates allowed to lend
Is around 32% of reserve requirements
Call Rates
Deposit mobilization of Banks, capital
17
18
manager, co-managers,
underwriters and brokers.
Investors indicate the amount at
different coupon rates or the
amount at cut-off coupon rate
Oversubscribed
19
Face Value
Price
Credit rating
Deemed date of allotment
Applicable interest rate
Interest on application money
Interest payment
Redemption
Put/call option
Letter of Allotment and Debenture Certificate
Security
20
Current Yield =
in price
Capital Gains yield Change
=
Beginning price
Exp. Total = YTM = Exp.
Exp.
+ Cap.
Return
Curr. Yld. gains yld.
21
22
Yield to Maturity
The yield-to-maturity
Bn
INT
INT
B0
...
1
n
n
(1 k d )
(1 k d )
(1 k d )
90
90
1,000
Rs.887
...
1
10
10
(1 k d )
(1 k d )
(1 k d )
YTM K d 10.91
24
YTM
= Current yield + Capital
Gains yield.
Cap Gains yield = YTM - Current
yield
= 10.91% - 10.15%
= 0.76%.
25