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debt market

debt market

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Published by aarthidog
debt market
debt market

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Published by: aarthidog on Dec 21, 2010
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The debt market is any market situation where trading debt instruments take place. Examples of debt instruments include mortgages, promissory notes, bonds, andCertificates of Deposit. A debt market establishes a structured environment where these types of debt can be traded with ease between interested parties.The debt market often goes by other names, based on the types of debt instruments that are traded. In the event that the market deals mainly with the trading ofmunicipal and corporate bond issues, the debt market may be known as a bond market. If mortgages and notes are the main focus of the trading, the debt market may be known as a credit market. When fixed rates are connected with the debt instruments, the market may be known as a fixed income market.Individual investors as well as groups or corporate partners may participate ina debt market. Depending on the regulations imposed by governments, there may bevery little distinction between how an individual investor versus a corporationwould participate in a debt market. However, there are usually some regulationsin place that require that any type of investor in debt market offerings have aminimum amount of assets to back the activity. This is true even with situations such as bonds, where there is very little chance of the investor losing his orher investment.One of the advantages to participating in a debt market is that the degree of risk associated with the investment opportunities is very low. For investors who are focused on avoiding riskier ventures in favor of making a smaller but more orless guaranteed return, going with bonds and similar investments simply makes sense. While the returns will never be considered spectacular, it is possible toearn a significant amount of money over time, if the right debt market offeringsare chosen.Related topicsDebt MarketGovernment BondsBonds TreasuryBond RatesGovernment BondDebt Market NewsInternational Debt MarketIssuers of various bonds, notes, and mortgages also benefit from the structuredenvironment of a debt market. By offering the instruments on a market that is regulated and has a solid working process, it is possible to interact with a larger base of investors who could be attracted to the type of debt instrument offered. Because most markets have at least some basic requirements for participationon the market, the issuers can spend less time qualifying potential buyers and more time spreading the word about the debt instruments they have to offer.Govt Bonds :A government bond, also called a treasury bond, is a savings bond issued, or sold, by a government. The money obtained from bond sales normally is used to support government projects and activities. A government bond usually offers a fixedinterest rate, and at variable points of the term of the bond or at maturity, the bond can be paid in full with interest. Government bonds are generally considered a safe investment because they are guaranteed by the government. Because ofthe low risk of losing an investment, the yield on a government bond is often less than other types of bonds.In the United States (U.S.), three basic types of government bonds include treasury bills—or T-bills, treasury notes and treasury bonds. The basic types generallyare based on the maturity schedule of the bond. A treasury bill, for example, can be issued if the bond will mature in one year or less. Treasury notes have alonger maturity schedule of two to ten years. For a maturity of 10 years or more, the government can issue a treasury bond, with interest being paid semiannually. Each country has its own variety of bonds available. The governments in the U
nited Kingdom (U.K.), South Africa and Ireland for example, offer several typesof gilts, or bonds. These sometimes pay a fixed amount every six months until the gilt matures and the remaining balance is paid. Many gilts are actually held by insurance groups and pension funds.Government bonds can have several advantages. For example, a government bond typically is a safe investment. These bonds also tend to provide a predictable return. While stocks may in the long-term out perform a government bond in terms ofinterest accrued, bonds guarantee a return—something not generally expected from astock. Some bonds also may have tax advantages. In the U.S., interest on bondsis often tax deductible—a consumer holding a federal bond can claim the interest earned as a tax deduction, for instance.Some government bonds have minimum purchase requirements. Bonds typically are available at brokerage or investment firms and banks. Government Web sites typically offer information on where to purchase bonds, minimum purchase requirements and maturity details.Investment bonds are debt instruments that are purchased by investors to offsetrisk and also to provide diversification to a portfolio. These investments generate reasonably stable income over a period of time. Investment bonds may be issued by a regional or local government, or by a corporation in need of capital. Bonds are considered a relatively safe investment in comparison with equities, although the stock market holds greater promise for surprisingly high returns. Trading in investment bonds takes place in the fixed-income markets.In exchange for a loan, bondholders receive a certificate detailing the value ofthe bond, the interest rate, the frequency of payments, and the maturity date or expiration of the contract. Investors receive semi-annual interest payments over the term of the bond and receive the principal amount when the bond matures.The combination of a bond's interest and principal payments constitute its yield.Investing in bonds carries less risk than equity investments because bondholdersreceive priority for payments over stockholders. Another feature of investmentbonds includes a characterization of being a safe investment due to the steady stream of income provided to investors over a period of years. Savings bonds, forinstance, may be used as vehicles to save for a college education. Taxes on savings bonds may be deferred until the maturity date of the bond.Investment bonds may be issued by a regional government, local municipality, orcorporation. In the US, the government issues bonds known as treasuries, becausethey are issued by the US Treasury Department. Proceeds from treasuries are used, for instance, to pay down the country's national debt. The life of US treasuries varies from three months to 30 years in duration.In addition to government-issued bonds, companies issue debt through investmentbonds in the fixed-income markets as a means to raise money. Investment bonds issued by a corporation tend to pay higher interest than government bonds. This isbecause the risk of a company defaulting on a loan is typically higher than a government failing to make payments, and therefore investors are taking on more risk.A corporate investment bond may be rated by a third party agency. This debt rating is a reflection of how much risk the bond carries and the likelihood that theissuer will default on a loan. Investment-grade bonds carry less risk of default than non-investment grade bonds do. Non-investment grade bonds, also known ashigh-yield or junk bonds, are issued by companies that are more vulnerable to mi
ssing interest or principal payments based on credit history or other debts on abalance sheet.Guaranteed bonds are types of bonds that are paid by parties other than those that issued the bonds. A bond is a debt security that represents money the issuerowes the holder. Bonds have individual terms, but in essence, they consist of principal and interest. While principal is the original amount, interest is an additional amount at a fixed rate, which serves as compensation for the borrowed amount. Interest is paid at specific times agreed upon by both the issuer and holder, and when the bond comes to maturity, the full amount of principal plus interest is due.With guaranteed bonds, either the principal, interest or both are paid by a party other than the original issuer, borrower or debtor. Making guaranteed bonds can be a marketing strategy, and it is used by some industrial companies to strengthen credit and to boost their own financial standing. These corporations oftentarget businesses that they have a monetary interest in and offer to make guaranteed bonds for them.These bonds can be risky because they are not necessarily sound investments. A guarantee bond can be difficult to ensure because the guarantor, the one who pledges that the debt will be paid, may default on the payment. A guaranteed bond should be supported with security that ensures the principal and interest can be paid. Guaranteed bonds should always come with written terms that are phrased ina way that requires the guarantor to cover the debtor
’s payment, no matter what.After guarantee bonds are issued, the terms of guarantee are outlined on the bonds and signed by the guaranteeing company. The best way to look at guaranteed bonds is an obligation of the company that issues them. Bonds that have been guaranteed differ from bonds that have been guaranteed by endorsement. Guaranteed bonds may have been guaranteed after they were issued, and the terms of guarantee are not necessarily explicitly outlined. When bonds are guaranteed by endorsement, each bond lists the fact that it is guaranteed, along with the signature of the cooperating corporation.If the bond issuer goes into default, a guarantee will limit the repercussions for the bondholder. Every country has its own rules for dealing with the defaulting of a bond issuer. In some nations such as Canada, the federal government guarantees the bond. If the issuer defaults, the government is responsible for the total cost of the bond, including principal and interestRevenue bonds are a type of bond where the repayments are not simply taken fromgeneral government funds. Instead, at the least, the money comes from a specificagency. In most cases the money comes specifically from the revenue that results from the project funded by the bond
s issue. Using revenue bonds can allow officials to fund a project without breaching general rules and limits on government debt.A bond is a government-issued debt security product. Though it is technically afinancial product bought by an investor, it effectively acts as a loan by the investor to the government. The bond can usually be redeemed on a set date at a premium to the initial price paid, with this premium effectively being the interest on the loan. Bonds can be sold between different investors before the redemption date. Government bonds are usually classed as a less risky type of security because, while a company may go out of business or refuse to repay its bonds, an

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