Professional Documents
Culture Documents
By
Nishant Bali
AGENDA
o Introduction of Debt Market
o Participants and products of debt market
o Few terms in Debt Market
o Types of Bonds
o Wholesale Debt Market (WDM) and Retail Debt Market (RDM)
o Repo and Reverse Repo
o Duration in Bond Market
o Convexity
o Relation between YTM and Bond Price
o Relationship between Maturity and Yield
o Callable and Puttable Bonds
o Brokerage Charges
o NSE MIBID/MIBOR
Introduction of Debt Market
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 Govt. securities market accounts for more than 90% of the total turnover
Few terms in Debt Market
o Maturity
o Coupon rate
o Principle
o Current yield
Types of Bonds
o Zero Coupon Bond
o Treasury STRIPS
o Step-up bonds
o Catastrophe bonds
o Junk Bonds
CONTI….
o Indexed bonds : Example
Wholesale Debt Market (WDM) and
Retail Debt Market (RDM)
o WDM commenced operation on June 13, 1994 .
o Large investors like corporate, banks, FII’s actively trade in this market
o Participant includes all classes of investors across the country (including retail
investors).
o Trading in Retail Debt Market is permitted under Rolling Settlement i.e. ( T+2) .
o Eligibility:
• Members who are registered members of NSE
• Members in WDM only, can participate in RDM on submission of a letter in the prescribed
format.
o Silent features of RDM
• CM of Capital Market and TM of the WDM allowed to participate in clearing and Settlement
with minimum net worth of Rs.1 crore.
• Mark to market margins will be applicable on all-open positions and payable on T+1 basis .
Repo and Reverse Repo
o Repo or Repurchase Agreements are short-term money market
instruments .
o What are Repo Transactions ?
o What are Reverse Repo Transactions ?
Duration in Bond Market
o Biggest risks in the bond market - interest rate risk .
o Duration measures how quickly a bond will repay its true cost .
o Duration means “till at what time the interest rate
cannot change the amount that we can receive” .
o Example: a government bond which is having face value Rs 1000,
coupon rate 15%, YTM 17% , maturity 3 years and repayment @
4% premium.
BOND CONVEXITY
Price
Yield
o YTM> Coupon rate then Intrinsic value<Face value and vive a versa.
o Here Kd = YTM. Higher the Kd, lower the present value or V0.
Relationship between Maturity and Yield
o Three main pattern created by term structure .
Yield
Maturity
Yield
Maturity
o Why the investors chooses invest in such type of Inverted yield Curve?
o When economy faces slowdown ahead
o Lock their investments today, to get better return ahead.
Callable Bonds
o Gives the right to the issuer to purchase the bond from the investor before
the maturity.
o Borrower purchase the bond when YTM<Coupon rate .
o Disadvantage to the investors:-
o Face Re-investment risk.
o Sacrifice the gain, because of low interest rate
2000
Straight Bond
1500
1300
1100
Callable
800 Bond