Final project

Investment and Portfolio Management

Topic: BOND MARKET

Sr. No. Group Member Name Roll NO.

1- Muhammad Umair Baig MCOW-F19-003

2- Farman Ali Kazmi MCOW-F19-004
3- Muhammad Sajid Hameed MCOW-F19-014
4- Naeem Saleem MCOW-F19-025
 history
 Temples functioned both as places of worship and as banks, under the oversight of the priests
and the ruler. Loans were made at a customary fixed 20% interest rate; this custom was
continued in Babylon, Mesopotamia.
 In these ancient times, loans were initially made in cattle or grain from which interest could be
paid from growing the herd or crop and returning a portion to the lender.
 By the Plantagenet era, the English Crown had long-standing links with Italian financiers and
merchants. These trade links were based on loans, similar to modern-day Bank loans; the loans
of the time were however not yet securitized in the form of bonds. 
 The first-ever Sovereign bond was issued in 1693 by the newly formed Bank of England.
 The U.S.A. first issued sovereign Treasury bonds to finance the American Revolutionary War.
Sovereign debt ("Liberty Bonds") was again used to finance its World War I efforts and issued
in 1917 shortly after the U.S. declared war on Germany.
 Bond Market

 The bond market is where investors go to buy and sell debt securities issued by corporations or
governments especially bonds but it may include notes, bills, and so for public and private
expenditures.
  Corporations and governments issue bonds to raise debt capital to fund operations or seek growth
opportunities.
 A bond is a fixed income instrument that represents a loan made by an investor to a borrower
(typically corporate or governmental). A bond could be thought of as an I.O.U. (I Owe You)
between the lender and borrower that includes the details of the loan and its payments.
 In return, they promise to repay the original investment amount, plus interest.
 The bond market where participants can issue new debt, known as the primary market.
 The bond market where participants can buy and sell debt securities, known as the secondary
market. 
 Types of bond market

Even though there is no standard classification of bond market, we can broadly classify bonds from the
perspective of a country as follows:

 Internal Bond Market: This is the national bond market of a country. The internal bond market itself
has two subcategories:
a) Domestic Bond Market: This refers to the market where the issuers domiciled within the country
issue the bonds and where these bonds are traded. A domestic bond is an obligation of a domestic
issuer, denominated in domestic currency, and sold and traded in the domestic market. For example,
in the US, a bond issued by Federal Reserve will be a part of the domestic bond market..
b) Foreign Bond Market: This is the market where the issuers from outside the country issue the bonds
in the country. Note that foreign bonds are similar to domestic bonds except that the issuer is a foreign
entity. For example, Japanese Government issuing a US-dollar denominated bond in the US foreign
bond market. Another example is Ford Motor Corporation issuing a yen denominated bond in Japan.
 Eurobond Market: This is also referred to as the external bond market or the international bond
market. This is the market for long-term debt instruments issued and traded in the offshore market. A
distinguishing characteristic for Eurobonds is that a Eurobond is offered for sale simultaneously in a
number of countries. Eurobonds are bonds issued by a non-resident and denominated in other than the
currency of the country in which it is being placed. The bond’s currency of denomination is referred to
as an offshore currency. An example is a US-based company issuing a U.S. dollar denominated bond
in Europe.
Eurobonds are named based on the currency in which they are issues. For example, Eurobonds issued
in US dollar are called Eurodollar bonds. Similarly a Eurobond in Japanese yen will be called Euro yen
bonds.
 Types of bonds

Bonds

Plain Vanilla or Deep discount Non-

Perpetual
conventional or zero conventional
bonds
bonds coupon bonds bonds
 GLOBAL
SCOPE
 As of 2017, the size of the worldwide bond market (total debt outstanding) is estimated at $100.13
trillion, according to Securities Industry and Financial Markets Association (SIFMA).
 As of August 2020, ICMA (Institute of Cost and Management Accountability) estimate that overall
size of the global bond markets in term of US Dollar equivalent notional outstanding is
approximately $128.3tn. This consists of $87.5tn SSA (Government bonds) (68%) and $40.9 th
corporate bonds (32%).
 Markets where bond is traded

 Bonds are traded in bond market. The bond market (also debt market or credit market) is a 

financial market where participants can issue new debt, known as the primary market, or buy and sell
debt securities, known as the secondary market.
 In terms of country of incorporation, the global corporate bond markets are dominated by the
US ($10.9tn) and China ($7.4tn). Between them they make up 45% of the total global corporate
bond market.
 Frequency of interest (Coupon)

The coupon is the interest rate that the issuer pays to the holder. For fixed rate bonds, the coupon is
fixed throughout the life of the bond. For floating rate notes, the coupon varies throughout the life of the
bond and is based on the movement of a money market reference rate (often LIBOR (London Interbank
Offered Rate)).
Historically, coupons (interest) were physical attachments to the paper bond certificates, with each
coupon representing an interest payment. On the interest due date, the bondholder would hand in the
coupon to a bank in exchange for the interest payment. Today, interest payments are almost always paid
electronically. Interest can be paid at different frequencies: generally semi-annual, i.e. every 6 months, or
annual.
 Gain or loss on a Bond Redemption
 The individual investor buys bonds directly, with the aim of holding them until they mature in order to
profit from the interest they earn.
 Investors in zero-coupon bonds receive no payments for their money until the bond matures. They buy
the bond for an amount that is less than its face value. When it reaches its maturity, they are paid the full
face value of the bond.
 When interest rates fall, bond values generally rise.
 When interest rates rise, bond values fall. Since bonds are interest-bearing securities, the value of
a bond will be closely affected by changes in interest rates.
 A couple of bad quarters or a punishing one-time event can force rating agencies to consider 
downgrading the creditworthiness of a borrower. Should even a single notch be chipped from an issuer's
credit rating, its bonds will take a significant hit.
 The exchange rate between your bond-issuing nation and your own takes a turn for the worse. You will
very quickly lose (a lot) of money. Bond laws are universal: The price of your bond will drop as rates
rise.
 Bond market in Pakistan

 In Pakistan, the development of money market and bond market was initiated in late 1990s after the
liberalization reforms; however, Pakistan's bond market has developed at a slow pace as compared to
other countries.
 According to State Bank of Pakistan (SBP) and Securities and Exchange Commission of Pakistan
(SECP) the domestic bonds outstanding were 30 percent of the GDP ( Gross Domestic Product),
equivalent to PKR 5.8 trillion as of June 2012. This consists mainly of government bonds, as the
corporate market is yet to develop.
 Government bond market gained momentum after the introduction of Pakistan Investment Bonds
(PIBs) in 2000, which helped to streamline the auction of Government Securities and to develop
secondary market for the Government Paper.
 References

 https://www.investopedia.com/terms/o/otc.asp
 https://en.wikipedia.org/wiki/Bond_(finance)
 https://en.wikipedia.org/wiki/Bond_market
 https://
corporatefinanceinstitute.com/resources/knowledge/trading-investing/revenue-b
ond
 https://
www.investor.gov/introduction-investing/investing-basics/investment-products/b
onds-or-fixed-income-products/bonds
 https://www.investopedia.com/terms/b/bondmarket.asp
 https://financetrain.com/types-of-bond-markets/
 https://www.investopedia.com/articles/bonds/08/lose-money-bonds-losses.asp
 https://cbonds.com/country/Pakistan-bond/