CABIAS, CLINT SHEEN I. BSA 3.

FINMARK - 542

ILLUSTRATIVE REPORT ON BOND MARKETS

Bonds History of Bonds

A bond is a type As far back as 2400 BC, bonds have
of debt security in been around for a very long time. The use
which the owner of of bonds has increased significantly over
the bond, known as the centuries, with both governments and
the issuer, owes the businesses turning to these securities for
holders a debt and, critical financing.
depending on the
The modern bond market started to
bond's terms, is required to pay them
develop in the 1970s. Investors discovered
interest (the coupon) and/or repay the
there was money to be made by buying
principal at a later time, known as the
and selling bonds on the secondary market
maturity.
and reaping price gains as supply
In general, interest must be paid at increased.
regular intervals (semiannually, annually,
To borrow money, however,
and occasionally monthly).
governments and big businesses primarily
used the bond market up until that point.
Insurance companies, pension funds, and
private investors looking for a high-quality
investment for money that would be
needed for a specific future purpose made
up the majority of bond investors.

Finance experts developed creative

ways for borrowers to access the bond
market for funding as investor interest in
bonds increased in the 1970s and 1980s
(and faster computers made bond math
easier) as well as new strategies for
investors to customize their exposure to
risk and return potential.
Importance of Bonds and It's Function to the Current Business World

Bonds are essential for balancing investment portfolios and assisting people in
keeping money on hand for short-term needs, despite lacking the panache and
showmanship that stock investing brings to the table.

Bonds are a common way for businesses to raise the funds they require to
operate, expand their product lines, or open new locations. Bonds are either issued on
the primary market, which issues new debt, or traded on the secondary market, where
investors can buy debt that has already been issued through brokers or other
intermediaries.

WHY ISSUE BONDS?

✔ CAPITAL PRESERVATION

Some fixed income securities will be riskier than others, but all bonds come with some
element of risk.

✔ INCOME

Most bonds provide bond holders with a fixed income stream on a scheduled basis.

✔ CAPITAL APPRECIATION

While capital appreciation is more synonymous with stocks, it is not exclusive to the
stock market. As mentioned above, bond prices can rise for several reasons, including a
drop in interest rates or an improvement in the issuer’s credit rating. By selling bonds
prior to maturity, investors can benefit from capital appreciation following a rise in the
bond price.

✔ DIVERSIFICATION

Historically speaking, bonds have had a low correlation to stocks, meaning their value is
often up when stocks are down. Because of this, high-grade corporate bonds can be
beneficial for diversifying the risks of owning stocks.Slower economic growth usually
leads to lower inflation, which makes bond income more attractive. An economic
slowdown is also typically bad for corporate profits and stock returns, adding to the
attractiveness of bond income as an alternative source of return.
 By selecting a variety
of investments and
investment types,
diversification helps you
reduce the risk
associated with such
scenarios. Even in a
market that is losing
value, diversification
doesn't ensure
investment returns or
remove risk of loss.

PROSPECTUS

A prospectus is a crucial disclosure document

that a business must publish when offering investment
instruments to the general public. Prospective investors
can learn in-depth information on stocks, bonds, mutual
funds, and other public investment products from these
official documents. Typically, a prospectus consists of
three sections: the Summary Note, the Registration
Document, and the Securities Note.

It is compose of overview of overview and history

of the company, it offers a timeline of significant
occasions that have taken place over time, including those that have aided the
company's expansion. Also Services/ product offered by the company, management
profile, desired deal structure where if the issuer is an established business that has
issued securities in the past, it might include a summary of its current capital structure
and explain how the new offer would affect it. Another are use of proceeds, security
offering details, financial informations, risks involved where the prospectus should
disclose the risks that investors face when investing in a mutual fund.

These elements provides a level of transparency to the public by outlining the

company's background and goals for raising capital. One of the main purposes of a
prospectus is to bring attention to a new company and initiate interest in a security with
the hopes of raising capital once its securities are made available to buy. It also details
potential risks the company
faces, including how long it's
been around, management
experience and involvement
level, and the market
capitalization of the issuer.

And these elements

affect TS bonds in a way that,
the prospectus for a
corporate bond issuance,
among other things, outlines
the terms of the bond,
significant risks of investing
in the offering, the financial
standing of the company
issuing the bond, and how the
firm intends to use the funds
from the bond sale.

RATING AGENCIES

A rating agency is a business that evaluates the financial health of businesses

and governmental organizations, particularly their capacity to pay off their debts'
principal and interest.
 The rating given to a particular debt demonstrates how confident an agency is in
the borrower's ability to fulfill its contractual obligations. In the bond market, a rating
agency provides an independent evaluation of the creditworthiness of debt securities
issued by governments and corporations.

Bond rating companies, also known as agencies, are for-profit businesses that
evaluate the creditworthiness of debt securities and their issuers. These businesses
should not be confused with government agencies. These businesses offer trustworthy
information to investors about the riskiness of various debt products. This might not
always be the case, though.

References:

https://www.holdun.com/learn-to-invest/bonds/why-are-bonds-so-important/3

https://www.angelbee.in/mutual-fund-basics/how-does-diversification-help-you

https://www.tn.gov/commerce/securities/investors/investor-education-program/bond-
ratingcompanies.html#:~:text=Bond%20rating%20companies%20(sometimes%20called,
of%20various%20kinds%20of%20debt.

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