Debt Market Grp 5

8/22/2019 Debt Market Grp 5

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AGENDA

Introduction of Debt MarketParticipants and products ofdebt market

Few terms in Debt MarketTypes of BondsRepo and Reverse RepoDuration in Bond MarketRelation between YTM andBond Price


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Introduction To Debt Market


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o Debt market :A market where fixed

income securities are issued and tradeo Share of debt market is much largerthan equity market in US, i.e. is close to$31.4 trillion which is nearly equal to the

total GDP of all countries takentogether

o Total size of Indian debt market is in therange of $92 billion to $100 billion i.e.

approximately 30% of Indian GDP.


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o Debt market consists of three segments Government security market Public sector undertaking bond

market(PSU) Corporate security market

o Govt. securities market accounts formore than 90% of the total turnover


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Few terms in Debt Market

o Maturity

o Coupon rate

o Principleo Yield to Maturity (YTM)

o Current yield


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Debt Instruments &

Features

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Contract between lender and theborrower

Bonds

Debentures

Features

Maturity Coupon

Principal


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Modifying

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Coupon Zero Coupon Bond

Treasury Strips Floating Rate Bond Others


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Cont.

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Term to Maturity Callable Bonds Puttable Bonds Convertible Bonds

Principal Repayment

Amortizing Bonds Bonds with sinking fundProvisions


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Indian Debt Market

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Market SegmentsGovernment 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)


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Indian Debt Market

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Issuer Instrument Maturity Investors

CentralGovernment

Dated Securities 2-20 Years RBI,Banks,Insurance Co., PFs,MFs, PDs,

CentralGovernment

T-Bills 91/364 days RBI,Banks,Insurance Co., PFs,MFs, PDs,Individuals

StateGovernment Dated Securities 5-10 Years Banks,Insurance Co.,PFs.

PSUs Bonds 5-10 Years Banks,Insurance Co., PFs, MFs,PDs,Individuals, Corporates

Corporates Debentures 1-12 Years Banks, Mutual Funds,Corporates,Individuals

Corporates,

PDs

Commercialpaper

3 months to1 Year

Banks, Mutual Funds, FI s,Corporates,Individuals

Banks Certificates of

Deposit3 months to

1 YearBanks, Corporates


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Central Government Securities:

Bonds

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Primary Issuance ProcessAuction basedEnable Higher Auction Volumes

Broadening participationEnsuring efficiency

Types of AuctionsDiscriminatory / Uniform PriceAuctionYield / Price Based Auction

Participants


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Cont..

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Primary DealersIntroduced in 1995 and atpresent 19Act as underwriters andmarket makers

To Strengthen InfrastructureTo divest responsibilities ofRBI

To facilitate Open Market


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Cont.

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Satellite DealersSecond Tier in Trading andDistributionProvide a retail outlet


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T - Bills

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Short Term borrowing

Issued at discount 91 / 364 Days T Bills

Abolition of Ad Hoc T-Bills

Issuance Process through AuctionBanks and PDsNon Competitive BidsCalendar 91 days Weekly 250 Cr. Wednesday

Thursday

364 days Fortnightly 750 Cr. WednesdayThursday

Usually held till maturity


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T-Bills

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Cut off YieldsYield given Price=((100-Price)*365/(Price*No. of days tomaturity)

Price given Yield=100/1+(yield%*(No.of days to maturity/365))

For Example: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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State Government Bonds

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Represent market borrowimg to financeGFD

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%


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Call Money Markets

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Short Term funds ranging fromovernight funds to 14 days

Banks and PDs allowed to

borrow/lendUTI, FI s, MF s, Corporates allowed

to lend

Is around 32% of reserverequirements

Call Rates De osit mobilization of Banks ca ital


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Corporate Debt: Bonds

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Bonds issued by PSU, FI, andCorporates

PSU bonds can be taxable ortaxfree

Issue ProcessAuthority for the issueAppointment of Debenture TrusteesOffer DocumentCreation of DRR AccountCreation of charge

Credit rating


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Issue management & Bookbuilding

Managed by consortium oflead manager, co-managers,underwriters and brokers.

Investors indicate the amountat different coupon rates or theamount at cut-off coupon rate


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Terms of debenture IssueFace ValuePriceCredit rating

Deemed date of allotmentApplicable interest rate Interest on application money Interest paymentRedemptionPut/call optionLetter of Allotment and Debenture

Certificate


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Current Yield =

Capital Gainsyield =

= YTM = +

Annual coupon pyt.Current price

Change in priceBeginning price

Exp. TotalReturn

Exp.Curr. Yld.

Exp. Cap.gains yld.


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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%.

Current yield =

= 0.1015 = 10.15%.

Rs.90Rs.887


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Yield to Maturity

The yield-to-maturity(YTM) isthe measure of a bonds rate of

return that considers both theinterest income and any capitalgain or loss.


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What is the YTM on a 10-year, 9% annualcoupon, Rs.1,000 par value bond, selling for

Rs.887?

Must find the kd that solves this model:

10.91KYTMd

10

d

10

d

1

d

n

d

n

n

d

1

d

0

)k(1

1,000)k(1

90...)k(1

90Rs.887

)k(1

B)k(1

INT...)k(1

INTB


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YTM = Current yield + Capital Gains yield.

Cap Gains yield = YTM - Current yield

= 10.91% - 10.15%= 0.76%.


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Coupon Rate, YTM, MP, and Par

Value

If MP = Par(Red.) Value, then YTM =

Coupon Rate If MP > Par (Red.) Value, then YTM Coupon Rate


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Thank YouNeeraj GoyalShreyance JainPiyush GoelPriya LuthraPriyanka ChadhaPallavi TripathiSudhir SharmaSwati

Debt Market Grp 5

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