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debt market Few terms in Debt Market Types of Bonds Repo and Reverse Repo Duration in Bond Market Relation between YTM and Bond Price
o Debt market : A market where fixed income securities are issued and trade o Share of debt market is much larger than equity market in US, i.e. is close to $31.4 trillion which is nearly equal to the total GDP of all countries taken together o Total size of Indian debt market is in the range of $92 billion to $100 billion i.e. approximately 30% of Indian GDP.
o Debt market consists of three segments Government security market Public sector undertaking bond market(PSU) Corporate security market o Govt. securities market accounts for more than 90% of the total turnover
Modifying
Coupon
Cont.
Term to Maturity
Principal Repayment
Amortizing Bonds Bonds with sinking fund
Provisions
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Government Securities
PSU Bonds Corporate Securities
Participants
Government, RBI, PDs, PSUs, FI s,
Corporates, Banks, Mutual funds, FII s, Provident Funds, Trusts. Secondary Market NSE- WDM only formal trading platform (NEAT)
Corporates, PDs
Banks
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Commercial paper
Certificates of Deposit
3 months to 1 Year
3 months to 1 Year
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Auction based Enable Higher Auction Volumes Broadening participation Ensuring efficiency Types of Auctions Discriminatory / Uniform Price Auction Yield / Price Based Auction Participants
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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
Cont.
Satellite Dealers Second Tier in Trading and
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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
T-Bills
Cut off Yields Yield given Price= ((100-Price)*365/(Price*No. of days to maturity)
Price given Yield=
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A 182 day T-Bill auctioned on January 18 at a price of 95.510 would have an implicit yield of 9.4280% computed as follows:
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GFD Currenrly at 13% of GFD Averages about 12000 Cr. 84000 Cr. Outstanding Managed by RBI, States upto 35% Coupon fixed at 25 bps above Central Government securities PDs allowed to particiapte SBI owns the largest chunk Low risk weight of 20%
overnight 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
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building Managed by consortium of lead manager, co-managers, underwriters and brokers. Investors indicate the amount at different coupon rates or the amount at cut-off coupon rate
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Exp. Exp. Cap. Exp. Total = YTM = Curr. Yld. + gains yld. Return
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Find current yield and capital gains yield for a 9%, 10-year bond (F.V. Rs. 1000) when the bond sells for Rs.887 and YTM = 10.91%.
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Yield to Maturity
The yield-to-maturity (YTM) is
the measure of a bonds rate of return that considers both the interest income and any capital gain or loss.
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What is the YTM on a 10-year, 9% annual coupon, Rs.1,000 par value bond, selling for Rs.887?
Must find the kd that solves this model:
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Coupon Rate If MP > Par (Red.) Value, then YTM < Coupon Rate If MP < Par (Red.) Value, then YTM > Coupon Rate
Thank You
Neeraj Goyal Shreyance Jain Piyush Goel Priya Luthra Priyanka Chadha Pallavi Tripathi Sudhir Sharma Swati
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