Fixed income securities slide 2

• Global fixed markets represent the largest segment in global financial markets
• Classification of fixed-income markets by type of issuer

  • Government and government related sector
  • Corporate sector
  • Structured financial sector
• Classification of fixed-income markets by credit quality

  • Investment Grade
  • Non-investment Grade-High Yield Bonds/Junk
• Classification of fixed-income markets by maturity

  • Money market
  • Capital Market
• Classification of fixed-income markets by currency denomination

  The currency denomination of bond's cash flows influences which country's interest rates affect a bond's price
• A bond's price will be driven by the credit quality of the issuer and by interest rates
• Classification of fixed-income markets by type of coupon

  • Fixed rate
  • Floating rates
• LIBOR rates


  Reflect the rates at which a panel of banks believe they could borrow unsecured funds from other banks in the London Interbank Money Market for different currencies and borrowing periods
• Classification of fixed-income markets by geography

  • Domestic bonds
  • Foreign bonds
  • Eurobond market
  • Developed Markets
  • Emerging Markets
• Other classifications of fixed-income markets


  • Inflation linked bonds
  • Tax exempt bonds
• Fixed income index


  Used to describe a given bond market or sector, and in evaluating the performance of investments
• Key categories of investors in fixed income securities

  • Central Banks
  • Institutional Investors
  • Retail investors
• How investors invest in fixed income securities

  • Central Banks and Institutional investors invest directly in securities
  • Retail investors invest indirectly through mutual funds
• The market is dominated by institutional investors due to high informational barriers and minimum transaction sizes
• Fixed income securities are more diverse than equity securities due to the variety of issuers and securities
• Most issuance and trading occurs in the OTC Market
• Primary Bond Markets


  Markets in which issuers initially sell bonds to investors to raise capital
• Secondary Bond Markets


  Markets in which existing bonds are subsequently traded among investors
• Types of primary bond market offerings

  • Public offering: Underwritten offering, Best effort offering, Auction - Competitive and Non-Competitive
  • Private Placement
• Types of secondary bond markets

  • Organised exchange
  • Over the Counter (OTC)
• Types of sovereign bonds

  • Treasury bills
  • Treasury Bonds
  • On-the-run issue
• Credit quality of sovereign bonds


  Depends on denomination
• Types of sovereign bonds

  • Fixed rate bond
  • Floating Rate bonds
  • Inflation linked bonds
• Types of non-sovereign government, quasi-government, and supranational bonds

  • Non-Sovereign bonds
  • Quasi Government bonds
  • Supranational bonds
• Types of corporate debt

  • Bank loans and syndicated loans
  • Commercial papers
  • Corporate notes and bonds
• Features of corporate debt

  • Coupon structures
  • Principal repayment structures
  • Collateral
  • Contingency provisions
• Types of structured financial instruments

  • Asset Backed Securities (ABS)
  • Collateralised Debt Obligations (CDOs)
• Other structured financial products

  • These instruments may combine a bond and a derivative instrument
  • Derivatives give the holder of structured financial instruments exposure to one or more underlying assets, such as equities, bonds, and commodities
• Capital Protected Instrument


  Guarantee certificate combines a zero coupon bond and a call option
• Participation Instruments


  Eg Floating rate bonds
• Leveraged Instruments


  Are created to magnify returns and offer the possibility of high payoffs from small investments
• Inverse floater


  Cash flows are adjusted periodically and move in the opposite direction of changes in the reference rate
• Short-term funding alternatives available to banks

  • Retail Deposits
  • Short-term wholesale funds: Reserve funds, Interbank funds, Large denomination Certificate of Deposits
  • Repurchase and Reverse Repurchase Agreements: Overnight repo, term repo, and repo to maturity
• Factors affecting Repo Rate

  • The risk associated with the collateral
  • The term
  • Delivery requirement for the collateral
  • Supply and Demand conditions of the collateral
  • Interest rates of alternative financing in the money market
• The yield to maturity is the discount rate that equates the present value of all future cash flows with the current market price.