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Bond Markets


Indian Bond Market

Bonds in India can be classified based on: The type of issuer. The bond characteristics.

Central Govt. securities

Issued by the central government. They are all very safe investments as they are backed by the central government. Day Count convention is: 30/360 Coupon: semi-annual

The Government of India also issues securities called Treasury Bills or just T-Bills, that have a maturity < 1 year. They are also called Money Market securities as they are of short duration. Day Count convention: Actual/365. No coupon.

State Government Securities

Although the majority of state funding comes through borrowings from the Central Government, a significant amount of borrowing is also done by the state through capital markets. These are called State Govt. securities. Day Count Convention is: 30/360 Coupon: Semi-annual

Corporate Bonds
Bonds issued by corporations are called corporate bonds. Day Count Convention is: Act/365, Coupon payment: Annual

Types of Bonds
Callable Bonds: These are bonds where the issuer has the right to buy back the bonds. The issuer will exercise if market rates are lower than coupon.

Finitiatives Learning India Pvt. Ltd. (FLIP), 2010. Proprietary content. Please do not misuse!

Bond Markets
A QUALITY E-LEARNING PROGRAM BY WWW.LEARNWITHFLIP.COM Puttable bonds: gives the investor the right to sell the bonds back to the issuer. The investor will exercise if market rates are higher than coupon. Convertible bonds: These are bonds that can be exchanged for specified amounts of common stock, after a certain period of time.

Money Market Instruments

CDs: issued by banks to raise money CPs: issued by corporates to raise money. CPs are issued at a discount to face value Call Money market: The most liquid tenor for borrowing and lending transactions remains the overnight market, which is called the call money market in India. Repos: A repo is therefore, a secured borrowing. RBI uses the repo as an instrument of monetary policy i.e., to signal interest rate changes. CBLO: The call money market is limited only to inter-bank participants. Other participants like mutual funds and corporates, with surplus liquidity, can participate in this market through the Collateralised Borrowing and Lending Operation (CBLO) of the Clearing Corporation of India Ltd. (CCIL). India has one of the deepest bond markets with instruments ranging from a few days to 30 years.

Primary market regulation is the responsibility of the RBI. In the secondary market, regulation is divided between the RBI and the Securities and Exchange Board of India (SEBI).

Market participants
Primary Dealers The primary dealers were expected to provide two-way prices on all G-secs, as well as to underwrite issues in the primary market Other participants include PSU Banks, Private sector banks, insurance companies, mutual funds etc.

Finitiatives Learning India Pvt. Ltd. (FLIP), 2010. Proprietary content. Please do not misuse!