BOND MARKET

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					          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

				
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