Get documents about "BOND MARKET
Shared by: HC12091321215
-
Stats
- views:
- 4
- posted:
- 9/13/2012
- language:
- Unknown
- pages:
- 34
Document Sample
BOND MARKET
Prepared by:
Fatma GÜLER 2005431016
Hakan GÜNEŞ 2005431018
Merve ÖZKALAY 2005431029
OUTLINE
Definition of Bond Market
Actors & Instruments
Why do we need this market?
Applications in USA
Applications in Turkey
Basic Definitions
The bond market (also known as the debt,
credit, or fixed income market) is a financial
market where participants buy and sell debt
securities, usually in the form of bonds.
A bond is a debt security, similar to an I.O.U.
When you purchase a bond, you are lending
money to a government, municipality,
corporation, federal agency or other entity
known as an issuer.
Basic Definitions
The Yield to maturity (YTM) of a bond is
the internal rate of return (IRR, overall
interest rate) earned by an investor who
buys the bond today at the market price,
assuming that the bond will be held until
maturity, and that all coupon and principal
payments will be made on schedule.
Classification of Bond Market
In USA, The Securities Industry and Financial
Markets Association classifies the broader bond
market into five specific bond markets:
Corporate
Government & agency
Municipal
Mortgage backed, asset backed, and
collateralized debt obligation
Funding
ACTORS IN USA
Bond market participants are similar to
participants in most financial markets and
are essentially either buyers (debt issuer)
of funds or sellers (institution) of funds and
often both. Participants include:
Institutional investors
Governments
Traders
Individuals
TYPES OF BOND
TYPES OF BOND
Types of bonds
by issuer
Types of bonds
by payout
TYPES OF BONDS BY ISSUER
Agency bond
Corporate bond (Senior debt,
Subordinated debt)
Distressed debt
Emerging market debt
Government bond
Municipal bond
Sovereign bond
TYPES OF BONDS BY PAYOUT
Accrual bond
Auction rate security
Callable bond
Commercial paper
Convertible bond
Exchangeable bond
Fixed rate bond
Floating rate note
TYPES OF BOND BY PAYOUT
High-yield debt
Inflation-indexed bond
Inverse floating rate note
Perpetual bond
Puttable bond
Reverse convertible
Zero-coupon bond
Bond Quotation
In Turkey, ISIN Code, which is produced
by İMKB Takas ve Saklama Bankası
A.Ş., is used to identify securities in bond
market.
1 2 3 4 5 6
TR B 04 09 02 T 1 4
Ülke Kodu a b c
ISIN CODE
1. Country Code: Turkey = TR
2. Type of Security
T: Devlet Tahvili
B: Hazine Bonosu
G: Kamu Ortaklığı İdaresi Gelir Ortaklığı
Senedi
D: Diğer Kamu Borçlanma Menkul Senetleri
ISIN CODE
3. Security’s
a: day
b: month
c: year
4. Security’s currency and type
T: TL ve Tüm Menkul Kıymet
A: TL ve Anapara
ISIN CODE
K: TL ve Kupon
F: Yabancı Para ve Tüm Menkul
Kıymet
P: Yabancı Para ve Anapara
C: Yabancı Para ve Kupon
5. Sequence number of same dated and
same kind of securities
6. Control Number
Why IMKB Bond Market?
Fixed Rate Bond
Constitute a transparent Distribute them efficintly
secondry between
market İntermediary agencies
Increase the
issue of securities
Why IMKB Bond Market?
Repo and Reverse Repo
Set the flow of funds
between
İntermediary agent
Make the repo transactions
İn transparent environment
Adventages of Bonds by Issuer
Costs are certain and limited
Lower risks than stocks
Interest rates are discounted from tax
base
Business owner do not share
administration and audit with bond holder
Disadvantages of Bonds by Issuer
Irregular earnings
Not offset interest
rate
Risk for business
Disadvantages of Bonds by Issuer
Although financial leverage work well, in a
high debt situation stock prices may fall
They cover long run and so risk
Because they are long run, they involve
high judgements than short run.
Advantages of Investing Bond Market
Periodic interest payments
Predetermined quantity and date
Low risk
Trade before maturity
Globalization in Bond Market
Credit risk
Interest
Country risk Investors rate
risk
Exchange
rate
risk
BOND MARKET APPLICATION
IN THE U.S.
World total bond market size(2008) $ 67 trillion
$33.5 trillion is belong to US bond market
Daily Trading Volume in the US
1.200,0
1.000,0
800,0
Volume
600,0 Seri 1
400,0
200,0
0,0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Years
BOND MARKET APPLICATION
IN THE U.S.
The US government funds their
borrowing through Treasury notes
and Treasury bonds.
Treasury notes’ maturity is up to 10
years
Bonds are issued from 10 years to 30
years.
Both are issued in denominations of
$1000 or more.
Semiannual interest payment called
coupon payments
The New York Stock Exchange
(NYSE) is the largest centralized
bond market,mostly corporate
bonds.
DAILY AVERAGE US BONDS VOLUME
US Market Size
Nearly 10% of all bonds
outstanding are held directly by
households
The US was the largest market for
domestic bonds in 2008 (43% of
amounts outstanding).
25% were in mortgage backed
bonds
20% in corporate debt
18% in Treasury bonds
Remainder in Federal Agency
securities and municipal bonds
BOND MARKET APPLICATION
IN THE TURKEY
Istanbul Stock Exchange (ISE) Bond Market includes
Government bonds,
Revenue indexed bonds,
Corporate bonds
Securities less than a year maturity called “Bills” which are
offered at a discount and payable by the issuer at nominal
value at the end of the term.
Government Debt Securities (GDS) as they are issued by
the Undersecretariet of Treasury for domestic market.
Private sector bonds or “Corporate bonds” are issued by
the joint stock companies.
Eurobond securities are also issued in Turkey
Market Patricipants in the
Turkish Bond Market
Central Bank of Republic of Turkey
Registered Commercial Banks
Investment Banks and Brokerage Houses,
Classify two type of bond market,
Primary market -when the bonds are issued first by the Treasury-
Secondary market -bonds after first issues by the intermediary
institutions-.
The most active organisation for bond trade is ISE
Bond market by doing Outright purchases and sales
market and repo and reverse repo market.
The Central Bank of Turkey also does Open Market
Operations with outright purchases and sales and Repo
Reverse Repo in Secondary market.
Bond Market Instruments in Turkey
Kesin alım satım pazarı
TL ve dövize endeksli
Devlet İç Borçlanma
Senetleri (DİBS)
TL ve dövize endeksli
Gelir Ortaklığı Senetleri
Gayrimenkul Sertifikaları
Borsa kotundaki özel
sektör tahvilleri
Repo Ters Repo Pazarı
Bond-Bill-Repo-Reverse Repo Volumes
Btw 2002-2008 (million TL)
09:30 Opening time of İstanbul Stock Exchange
Orders are transmitted via automated terminals or phone to the
market on 212-298 22 22 –For the same day value transactions
09:30-14:00- For different dated value transactions 09:30-17:00
12:00-13:00 Midday break
If the order matches with the order appear in the screen,, the
same or a better rated and appropriate sized orders should be
transmitted
Transmitting order following 18.2.4
To transmit of the best order to the screen automatically, to set in
other orders giving priority to price and timing.
If the orders are executed, confirmation should be given to the
counterpart and transmitting second degree orders to the screen
14:00 The market closes for the same day value transactions
(Unexecuted orders are cancelled automatically)
Until 16:30, the parties settle their obligation for the same day
value transactions.
17:00 Market closing time.
OUTRIGHT PURCHASES AND SALES MARKET
Classified by Government Securities and Corporate Securities over the period of 2000 and 2009.
400.000
350.000
300.000
250.000
200.000
Trading Volume
150.000
100.000
50.000
0
2000 2002 2004 2006 2008
Government Securities Trading Volume Over Period of 2000-2009
Volume in US Dollar, ( Million)
Source: Istanbul Stock Exchange
General Look to Turkish & US
Bond Market
TURKISH DEBT SECURITIES USA DEBT SECURITIES
- Turkish securities’ maturity are - US securities maturity are between 10
between 1 year and 3 years usually. years and 30 years.
- The country sovereign credit rating is - The country credit rating is high due
low due to volatility and economic to more stable macro economical
variables. variables.
- ( Rating is BB- according to S&P, - ( Rating is AAA according to S&P,
November 2008.)[1] October 2009.)[3]
- Due to low credit rating, Turkish - Due to high credit rating, US
securities offer great risk premium. securities’ risk premium is lesser.
- Since Turkish bond market is new - As the US bond market is too
and developing, the types that are sophisticated, there are many types of
issued are less. bonds issued
- Trading volume is low when - Trading volume is extremely high
compared to developing world due to being a central economy and
economies. In 2008 the trading having more market players. In 2008
volume of Turkish securities were the trading volume of US securities
about 292 Billion US Dollar.[2] were about 33 Trillion US Dollar.[4]
[1] Source: Financial Times, S&P Downgrades Turkey’s Credit Rating, 14.November 2008
[2] Source: Istanbul Stock Exchange
[3] Source: www.dailyfinance.com, Moody’s warning on the US Credit Rating.
[4] Source: http://en.wikipedia.org/wiki/Bond_market
