BOND MARKET

GROUP MEMBERS :

KALPESH THOMBARE
SANOBER ZARIR VAID
GIRISH WADEKAR
PUNIT BHANUSHALI
WHAT IS A BOND MARKET ?
The environment in which the issuance and trading of debt securities occurs.

Includes government-issued securities and corporate debt securities

Facilitates the transfer of capital from savers to the issuers or organizations
requiring capital for government projects, business expansions and ongoing
operations.

Most trading in the bond market occurs over-the-counter, through organized
electronic trading networks, and is composed of the primary market and the
secondary market

The bond market is actually many times bigger than the stock market and is
vital to the ongoing operation of the public and private sector

Types of Bonds in Indian Bond Market


Government Bonds :
Treasury Bills (T-bills)
Cash Management Bills (CMBs)
Dated Government Securities
Municipal Bond

Zero Coupon Bond

Junk Bond

Tax Saving Bond

GOVERNMENT BOND
Tradable instrument issued by the Central Government or the State
Governments.
Acknowledges the Governments debt obligation.
Such securities are short term (usually called treasury bills, with original
maturities of less than one year) or long term (usually called Government
bonds or dated securities with original maturity of one year or more).

TREASURY BILL (T- BILLS)
These are money market instruments, are short term debt instruments
issued by the Government of India
Treasury bills are zero coupon securities and pay no interest.
They are issued at a discount and redeemed at the face value at maturity
The return to the investors is the difference between the maturity value
or the face value (that is Rs.100) and the issue price


Cash Management Bills (CMBs)

It is the new short-term instrument to meet the temporary mismatches in the
cash flow of the Government.
The tenure, notified amount and date of issue of the CMBs depends upon the
temporary cash requirement of the Government.
Investment in CMBs is also reckoned as an eligible investment in Government
securities by banks for SLR purpose
Dated Government Securities
These are long term securities and carry a fixed or floating coupon (interest
rate) which is paid on the face value, payable at fixed time periods (usually
half-yearly).
The nomenclature of a typical dated fixed coupon Government security
contains the following features - coupon, name of the issuer, maturity and face
value.
FIXED RATE BONDS

FLOATING RATE BONDS

ZERO COUPON BOND

CAPITAL INDEXED BONDS
BONDS WITH ALL/PUT
OPTION
STRIPS
INSTRUMENTS
RISK INVOLVED & RISK MITIGATION
Market risk

Reinvestment risk

Liquidity risk

CORPORATE BONDS

A debt security issued by a corporation and sold to investors.
The backing for the bond is usually the payment ability of the
company, which is typically money to be earned from future
operations.
In some cases, the company's physical assets may be used as
collateral for bonds.
Corporate bonds are considered higher risk than government bonds.
As a result, interest rates are almost always higher, even for top-flight
credit quality companies.

INSTRUMENTS / TYPES
FIXED RATE BONDS

FLOATING RATE BONDS

ZERO COUPON BOND

Tax-Savings Infrastructure
Bonds
BONDS WITH ALL/PUT
OPTION
Debentures
INSTRUMENTS / TYPES
Foreign Currency Convertible
Bonds

Perpetual Bonds

PSU Bonds

Junk Bonds
Secured / Unsecured Bonds
Risks and Return
RETURN
Issuer
Currency
Coupon
Maturity
RISKS
Liquidity Risk
Interest Rate Risk
Default Risk
Downgrade risk
Economic risk
Company and industry event
risk
Resource Mobilisation by Government and Corporate
Sector Source : RBI

Issues
2010-11 (Rs bn) 2011-12 (Rs bn) 2012-13 (Rs bn)
Corporate Securities 2,855 2,336 3,403
Domestic Issues 2,760 2,308 3,392
Public Issues 376 129 139
Private Placement 2,384 2,180 3,254
Euro Issues 94 27 10
Government Securities 5,835 7,590 8,658
Central Government 4,795 6,004 6,885
State Governments 1,040 1,586 1,773
Total 8,690 9,926 12,060
Growth of Private Placement of Debt

Resources Raised from Debt Markets : Primary Issue
All values in Rs. bn

0
2000
4000
6000
8000
10000
12000
14000
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 Apr - Sept
2013
1
8
1
7

2
0
0
2

2
5
6
0

4
3
6
7

6
2
3
6

5
8
3
5

7
5
9
0

8
6
5
8

9
2
5
0

7
9
5

9
2
4

1
1
6
2

1
7
5
8

1
9
2
0

2
0
1
7

2
8
8
2

3
6
8
8

1
2
7
6

Corporate
Security
Govt. Security
Resources Raised from Debt Markets : Secondary Issue
All values in Rs. bn

0
20000
40000
60000
80000
100000
120000
140000
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
2
5
8
0
4

3
5
8
3
3

5
6
2
7
3

6
2
2
5
4

8
4
2
5
3

7
0
6
8
3

7
3
4
3
1

1
2
0
1
1
6

2
5
0

1
4
1

2
2
2
4
5
9

1
1
4
2

1
5
9
2

1
7
6
1

1
9
9
4

Corporate Security
Govt. Security
Bond Market as Percentage of GDP

30
13
Percentage
Govt . Bond
Corporate Bond
Security-wise Distribution of Turnover, 2012-2013

53%
23%
16%
8%
Percentage
Govt . Bond
T - Bills
Psu/ Inst Bond
Others
Participant-wise Distribution of Turnover, 2012-2013

53%
22%
16%
4%
4%
Percentage
Trading Members
Foreign Bank
Indian Banks
FI , MFs & corporates
Primary Delears
Thank You