Bond Markets
A bond is a debt security, or basically a loan, that an investor makes to a corporation, a government, an agency, or municipalities. In return for up-front cash, a corporation or government promises to make specific payments to a bondholder on specific dates. The bondholder can not only expect fixed payments but also the principle repayment when the bond reaches its maturity date (The Bond Market, 2002). A bond is considered a fixed-income security because the investor knows the exact amount of cash that will be paid back if the bond is held until maturity.
A bond market is a financial marketplace where investors can purchase and sell various types of bonds or debt securities. It can be categorized into three main groups: issuers, underwriters, and purchasers. Issuers sell bonds or other debt securities in the bond market to finance the operations of their various organizations. The main issuers of the market are governments, banks, and corporations. Underwriters are traditionally made up of investment banks and other financial institutions that help the issuer to sell the bonds in the market. The need for underwriters is the greatest for corporation debt market because there are more risks involved. Purchasers are made up of those who buy the debt being issued in the market. They can include not only every group mentioned but also any other type of investor, including the individual. The largest player in the market is governments because they borrow and lend money to other governments and banks and often purchase debt from other countries. (Who are the key players?, 2007)
There are bonds available today to satisfy almost any investment objective and to suit just about any investor, whether individual or institutional. The bond market is divided into four major segments: treasuries, agencies, municipals, and corporates. Treasury bonds are issued by the U.S. Treasury, have the lowest risk, and are the highest quality. All Treasury bonds are backed by the "full faith and credit" of the U.S. government and are very popular with both individual and institutional investors (Gitman & Joehnk, 2005, p. 429).
Agency bonds are issued by various agencies and organizations of the U.S. government. Although they are most like Treasuries, they are not under the obligation of the U.S. Treasury and can not be considered the same.
The national debt of the United States is calculated using the worth of the Treasury securities that have been distributed by the Treasury and other bureaus of the federal government. Debt held by the public consists of debt held by persons, businesses, the Federal Reserve System, and foreign, state, and local governments. Debt that is held by the government consists of trading securities that are held in accounts managed by the federal government. Examples of debt held by the government are funds owed to program beneficiaries, such as the Social Security Trust Fund.
Reserve begins to buy these bonds back the bond prices are increased to make the
No bond issue of Apple Inc has experienced change in Yield to Maturity during last one year.
Intra-governmental holdings are debts owed to government accounts. A major part of this debt is owed to social securities account, which is going to be paid when baby boomers retire over the next 20 years.
Flawed financial innovations: the implementation of innovations in investment instruments such as derivatives, securitization and auction-rate securities before markets. The indispensable fault in them is that it was difficult to determine their prices. “Originate to distribute securities” was substituted by securitization which facilitated the increase in ...
Organizations that decide to issue bonds generally go through a series of steps. Discuss the six steps.
Investment banks also provide guidance to issuers regarding the issue
William Sharpe, Gordon J. Alexander, Jeffrey W Bailey. Investments. Prentice Hall; 6 edition, October 20, 1998
Debt capital refers to money borrowed. Examples of this include bonds and short-term commercial paper. Bonds are more widely used because it provides a company with years to come up with the principal while paying interest only. Bonds are rated (i.e. AAA, AA, BB, etc.), these ratings correspond to the risk of default. The higher the rating, the lower likelihood of default and therefore a lower interest rate accepted by the lender. Short-term commercial paper is typically...
Zero coupon municipal bonds combine the benefits of the zero coupon instrument with those of tax-exempt municipal securities and offer the following advantages:
Howells, Peter., Bain, Keith 2000, Financial Markets and Institutions, 3rd edn, Henry King Ltd., Great Britain.
In 2008, the world experienced a tremendous financial crisis which is rooted from the U.S housing market. Moreover, it is considered by many economists as one of the worst recessions since the Great Depression in 1930s. After bringing a huge effect on the U.S economy, the financial crisis expanded to Europe and the rest of the world. It ruined economies, crumble financial corporations and impoverished individual lives. For example, the financial crisis has resulted in the collapse of massive financial institutions such as Fannie Mae, Freddie Mac, Lehman Brothers and AIG. These collapses not only influenced own countries but also international scale. Hence, the intervention of governments by changing and expanding the monetary and fiscal policy or giving bailout is needed in order to eliminate and control enormous effects of the financial crisis.
... the public and private sector. It uses both the weak form and semi strong from to make decisions. When an investor is given both public and private information the investor would not be able to profit about the average investor even if he was provided with new information at any given time. These investors are given name such as insiders, exchange specialist, analyst and money mangers. Insiders are senior managers that have access to inside information of that company. The security exchange commission prohibits that allow of inside information use to achieve abnormal returns on investments. An exchange specialist can achieve above average returns with specific order information on a specific equity. Analysts can analyze whether an analyst opinion can help an investor achieve above average returns. Institutional money mangers work handle mutual funds and pensions.
The stock market is an essential part of a free-market economy, such as America’s. This is because it provides companies the capital they need in exchange for giving away small parts of ownership in their company to investors. The stock market works by letting different companies sell stocks to gain capital, meaning they sell shares of their company through an exchange system in order to make more money. Stocks represent a small amount of ownership in a company. The more stocks a person owns, the more ownership they have of that company. Stocks also represent shares in a company, which are equal parts in which the company’s capital is divided, entitling a shareholder to a portion of the company’s profits. Lastly, all of the buying and selling of stocks happens at an exchange. An exchange is a system or market in which stocks can be bought and sold within or between countries. All of these aspects together create the stock market.
their financial future. Different types of investments are investigated and bonds are one of the