1 / 9

Introduction to Bond Markets

Introduction to Bond Markets. Investments and Portfolio Management MB 72. Outline. Bond Markets Before 1980s and Bond Markets now What are fixed-income securities? Participants/Players Meaning of a Bond Features of a Bond Types of Bonds Sources of Risk and Return in Debt Securities

shiri
Download Presentation

Introduction to Bond Markets

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Introduction to Bond Markets Investments and Portfolio Management MB 72

  2. Outline • Bond Markets Before 1980s and Bond Markets now • What are fixed-income securities? • Participants/Players • Meaning of a Bond • Features of a Bond • Types of Bonds • Sources of Risk and Return in Debt Securities • Regulation of Fixed Income Securities

  3. Why a Separate Course on Fixed Income Securities? • Markets Prior to 1980s • Dominated by plain vanilla bonds with simple cash flow structures • Valuation was simple and straightforward • Markets After 1980s • Complex cash flow structures • A variety of securities • Derivative products to facilitate portfolio strategies to control interest rate risk and to enhance return • Wider range of investors

  4. Two thirds of the market value of all the securities outstanding in world classified as fixed income • Most participants in the corporate and financial sectors participate in this market • Federal governments, state governments, and municipalities have not choice but to issue fixed income securities • Therefore, a need to have well informed participants so that they understand • the forces that drive the bond market • The valuation of complex cash flow structures • Portfolio management strategies

  5. Meaning of a Bond • A debt instrument requiring the issuer also called the debtor or borrower to repay to the lender/investor the amount borrowed plus interest over some specified period of time • A typical “plain vanilla” bond issued in the U.S. specifies • A fixed date when the amount borrowed is due • The contractual amount of interest, which is typically paid every six months • Cash flow pattern is know assuming no default

  6. Features of a Bond • Face Value • Maturity • Yield • Callable/Non-callable • Refunding Provisions • Provisions for paying off bonds

  7. Types of Bonds • Zero Coupon Bonds • Floating Rate Bonds • Callable Bonds • Convertibles

  8. Risks of Bonds • Interest Rate Risk • Reinvestment Risk • Call Risk • Default Risk • Inflation Risk • Exchange Rate Risk • Liquidity Risk

  9. Regulation of Bond Markets • Largely self-regulated • Federal Reserve and the SEC closely follow this market • By and large this market is left to operate on its own • Three major institutions oversee the regulation of the market: • The U.S. Treasury • The Federal Reserve • The Securities and Exchange Commission • Goal is to improve market transparency and access to information for all participants

More Related