Bond Market

BOND MARKET
Bond Market
The bond market is where investors go to trade (buy and sell) debt securities, prominently bonds, which
may be issued by corporations or governments. The bond market is also known as the debt or the credit
market. Securities sold on the bond market are all various forms of debt. By buying a bond, credit, or debt
security, you are lending money for a set period and charging interest—the same way a bank does to its
debtors. The bond market provides investors with a steady, albeit nominal, source of regular income. In
some cases, such as Treasury bonds issued by the federal government, investors receive bi-annual
interest payments. Many investors choose to hold bonds in their portfolios as a way to save for
retirement, for their children's education, or other long-term needs.
Stock Market vs. Bond Market

One major difference between the bond and stock markets is that the stock market has central places or
exchanges where stocks are bought and sold.
The other key difference between the stock and bond market is the risk involved in investing in each.
When it comes to stocks, investors may be exposed to risks such as country or geopolitical risk (based on
where a company does business or is based), currency risk, liquidity risk, or even interest rate risks, which
can affect a company's debt, the cash it has on hand, and its bottom line.
Bonds, on the other hand, are more susceptible to risks such as inflation and interest rates. When interest
rates rise, bond prices tend to fall. If interest rates are high and you need to sell your bond before it
matures, you may end up getting less than the purchase price. If you buy a bond from a company that
isn't financially sound, you're opening yourself up to credit risk. In a case like this, the bond issuer isn't able
to make the interest payments, leaving itself open to default.
Stock market performance can broadly be gauged using indexes such as the S&P 500 or Dow Jones
Industrial Average. Similarly, bond indices like the Barclays Capital Aggregate Bond Index can help
investors track the performance of bond portfolios.
BS-ENTREPRENEURSHIP (GROUP 5)
Members: Jane Tricia Amante Ram Gutierrez Neil Kenneth Reyes
Denise Nicole Cuartero Diana Rose Naingue Nicole Valenzuela
Joshua Dela Cruz Aislinn Patron Lander Villadolid
Jay-R Estacion Jan Joshua Rodil
BOND MARKET
How Stock and Bond Market interacts
To understand how stock and bond prices can affect each other, it is essential to understand that stocks
and bonds are competing for investors’ money. Stocks are considered more risky than bonds, since they
can lose value rapidly depending on a company’s fortunes and the stock market is typically much more
volatile than the bond market.
Bonds, on the other hand, are controlled by their face value – the value of the loan that the bond was
initially issued for. When a bond eventually reaches maturity, the bond issuer will pay the bond holder at
the face value of the bond, regardless of economic conditions at the time of maturity.
BOND MARKET
BULL AND BEAR MARKETS
During bull and bear markets, stock and bond prices typically move in opposite directions. In a bull
market, investors are likely to see stocks as less risky because the stock market as a whole is performing
well. That means that stocks potentially offer a greater reward-risk ratio, so investors will move their
money from bonds to stocks, increasing the price of stocks and decreasing the price of bonds. The
opposite is true in bear markets. As stock prices decline, risk-averse investors looking for a safe haven will
see bonds as a better investment than stocks. This drives the price of bonds up and further drives the
stock market down.
BOND MARKET
INTEREST RATE CHANGES
Interest rate changes complicate the relationship between stocks and bonds. Under certain conditions,
interest rate changes may cause stock and bond prices to move in the same direction. But, this is not
always the case.
Interest rates have the strongest effect on bond prices. The effective yield of a bond is reduced when
investors could achieve close to the same profit without paying for a bond as interest rates rise. Thus,
bond prices fall when interest rates rise, and rise when interest rates fall.
At the same time, interest rate changes may or may not have a strong effect on the stock market. In
theory, falling interest rates will push stock prices up since lower interest rates allow consumers to spend
more and companies to borrow money to expand. Rising interest rates constrict the economy, causing
stock prices to fall.
If interest rates have a strong effect on the stock market, then lower interest rates will cause both stock
and bond prices to rise, while higher interest rates will cause both stock and bond prices to fall. However,
the stock market does not always respond strongly to interest rate changes because of investor
sentiment, a strong or poor earnings season, or a multitude of other factors. In that case, it can be difficult
to predict whether the bond and stock markets will move in the same direction in response to an interest
rate change.
BOND MARKET
ECONOMIC OUTLOOK
Whether the economy is forecast to grow or contract can also affect investors’ choice between stocks and
bonds. Economic growth is typically good for stocks, since it means higher profit potentials for
corporations in the future. At the same time, economic growth carries the risk of inflation, which reduces
the effective profit from holding a bond as the bondholder will be paid the worth of the bond prior to
inflation. Thus, forecasted economic growth, like a bull market, can cause stock prices to rise as bond
prices fall.
Note that the converse is not necessarily true, however, because monetary deflation is extremely
uncommon even when the economy is expected to contract. Thus, a poor economic outlook can cause
both stock and bond prices to fall, and investors’ sentiment about which of the two markets presents a
safer option may determine which falls harder.
BOND MARKET
Conclusion:
The stock and bond markets have a complicated relationship that depends on how the stock market is
performing, expected trends in interest rates, and the national economic outlook. While stocks and bonds
are competing for investors’ money, and thus stock and bond prices often move in opposite directions,
there are specific cases when both markets can rise or fall together.
BENEFITS OF BOND MARKET IN

ECONOMY
Avenue to invest
Direct competition to banks
Good indicator of wider micro-level signals
Money supply is absorbed
Inflation is controlled
Improvement in currency
Foreign portfolio investment
KEY PLAYERS IN BOND MARKET

Bond Issuers
The issuers sell bonds or other debt instruments in the bond market to fund the operations of their
organizations.
Bond Underwriters
The underwriting segment of the bond market is traditionally made up of investment banks and other
financial institutions that help the issuer to sell the bonds in the market.
Bond Purchasers
The final players in the market are those who buy the debt that is being issued in the market. They
basically include every group mentioned as well as any other type of investor, including the individual.
Governments play one of the largest roles in the market because they borrow and lend money to other
governments and banks.
Furthermore, governments often purchase debt from other countries if they have excess reserves of that
country's money as a result of trade between countries. For example, China and Japan are major holders
of U.S. government debt.
BOND MARKET
Philippine bond market

The Philippine Domestic Bond Market consists of short and long term bonds, mainly issued by the
government
The Philippine bond market is dominated mainly by the Treasury notes and bonds. Although the size of
the Philippine corporate bond market is still small relative to government bonds, it has been growing
rapidly over years
In the Philippines, corporate bond issuance came from various sectors, mostly banks, real estate and
telecommunication companies, toll way operators and a beer-based conglomerates.
The growth in the region's bond market was driven partly by huge demand from foreign investors looking
for more attractive returns than those available in the United States, Europe, and other developed
markets.
Types of Securities:
Treasury Bills (Fixed rate)
Treasury Bills or popularly known as T-Bills are peso-denominated short-term fixed income securities
issued by the Republic of the Philippines through its Bureau of Treasury.
Treasury bonds (Fixed-rate coupon-bearing and zeroes)
Treasury Notes and Bonds, FXTNs and RTBs as they are commonly called, are medium- to long-term
government securities that pay interest regularly (known as interest coupon payments) . This is a relatively
risk-free investment as these are direct obligations of the Republic of the Philippines denominated in the
local currency.
Retail Treasury Bonds (RTBs, fixed-rate coupon-bearing)
Retail Treasury Bonds (RTBs) are medium to long-term investments issued by the Philippine government
through the Bureau of Treasury. These bonds carry minimal risk and are originally issued with tenors of 3
to 25 years. They form part of the Government’s program to make Government Securities available to
retail investors.
Dollar-Linked Peso Notes ( fixed-rates)
Dollar-linked or Global Peso Notes are issued by the Republic of the Philippines to provide the market with
a Bond that capitalizes on the strength of the PhP against USD.
Debt securities issued by the government-owned and controlled corporations (GOCCs)

Debt securities issued by the government agencies
SOURCES:
Chen, J. (2020, March 31). Understanding the Bond Market. Investopedia.

https://www.investopedia.com/terms/b/bondmarket.asp
N. (2013, July 17). Bond market in philippines. Slideshare.
https://www.slideshare.net/nikitapandey20/bond-market-in-philippines
G. (2019, December 18). How Do the Stock and Bond Markets Affect Each Other?
SpeedTrader. https://speedtrader.com/how-do-the-stock-and-bond-markets-affect-each-
other/

Bond Market

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BOND MARKET

Stock Market vs. Bond Market

How Stock and Bond Market interacts

BULL AND BEAR MARKETS

INTEREST RATE CHANGES

BENEFITS OF BOND MARKET IN

KEY PLAYERS IN BOND MARKET

Philippine bond market

Debt securities issued by the government-owned and controlled corporations (GOCCs)

Chen, J. (2020, March 31). Understanding the Bond Market. Investopedia.

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