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Content page 1 . Valuation of Bonds Key Concerns and Solutions. Nitin Jaiswal Bloomberg L.P. Content page 1 . Agenda for the Presentation. Importance of Valuation for a Bond Market Key Issues relating to Bond Valuations in Asia Government Bonds Corporate Bonds

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  1. Contentpage 1 • Valuation of Bonds • Key Concerns and Solutions Nitin Jaiswal Bloomberg L.P

  2. Contentpage 1 Agenda for the Presentation • Importance of Valuation for a Bond Market • Key Issues relating to Bond Valuations in Asia • Government Bonds • Corporate Bonds • Making a robust Valuation model for Asian Bond Markets – ideas and suggestions.

  3. Contentpage 1 Importance of Valuation for a Bond Market • Transparency • IAS 39 Guideline • Basil II Guideline • Stringent disclosure requirement post Enron and WorldComm Scandal • Risk Management • Key concern for any bank • Avoiding financial scandals • Brings Liquidity in the Market • Transparent market will attract investment • Example: Bond Funds, investment in Financial Industry • A good valuation model is the necessity of every financial markets.

  4. Contentpage 1 Valuation of Government Bonds • Key Requirements: • To have a well accepted model to calculate fair values for the illiquid bonds. • To have a well accepted par coupon and zero coupon curve. • To have a well accepted underlying risk free government curve. • Easy availability of the information.

  5. Contentpage 1 Valuation of Corporate Bonds • Key Issues: • Nature of Corporate Bonds • Large number of issues • Complicated structures • Illiquidity premium • No clear cut guideline on corp. bond valuations • Information Disclosure • Bond Structure • Ratings information • Yield calculators • Price availability for all the bonds • Issues related to private placement

  6. Contentpage 1 Nature of Corporate Bonds • Large number of corp. bonds : 19668 (ex Japan and Australia) • Complicated Structures: • Normal Fixed • Normal Floating • Normal Zero Coupon • Callable Fixed • Callable Floating • Callable Zero Coupon • Callable Step-up • Callable Defaulted • Sinkable Fixed • Sinkable Floating • Extendable Fixed • Call Extendable Fixed • Convertible fixed • Convertible call Fixed / Floating

  7. Contentpage 1 Liquidity in Corp. Bonds • Average number of corporate bonds traded in last 7 days: • Malaysia 21 • India 12 • Thailand 8 • Korea 24 • No clear cut guideline for corp. bond valuations

  8. Contentpage 1 Information Disclosure • Most of the corporate bonds are private placement: • Lack of easy availability of information and this leads to illiquidity in the long run. • Availability of bond structure • Ratings information • Treatment of unrated papers • Lack of clarity on issuer v/s program rating. • Availability of rating information • Methodology of Yield calculators • Each lead manager structure the issues in his / her own way. • No public available of Calculation information and convention. • Price availability for all the bonds • Growth of structured bonds

  9. Contentpage 1 Your Thoughts and Ideas • Better Bond Valuation Models.

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