AGENDA
 Introduction of Debt Market
 Participants and products of
debt market
 Few terms in Debt Market
 Types of Bonds
 Repo and Reverse Repo
 Duration in Bond Market
 Relation between YTM and
Bond Price
Introduction To Debt Market
o Debt market : A market where fixed
income securities are issued and trade
o Share of debt market is much larger
than equity market in US, i.e. is close to
$31.4 trillion which is nearly equal to the
total GDP of all countries taken
together
o Total size of Indian debt market is in the
range of $92 billion to $100 billion i.e.
approximately 30% of Indian GDP.
o Debt market consists of three segments
– Government security market
– Public sector undertaking bond
market(PSU)
– Corporate security market
o Govt. securities market accounts for
more than 90% of the total turnover
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Few terms in Debt Market
o Maturity
o Coupon rate
o Principle
o Yield to Maturity (YTM)
o Current yield
Debt Instruments & Features
 Contract between lender and the borrower
 Bonds
 Debentures
 Features
 Maturity
 Coupon
 Principal
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Modifying
 Coupon
 Zero Coupon Bond
 Treasury Strips
 Floating Rate Bond
 Others
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Cont.
 Term to Maturity



Callable Bonds
Puttable Bonds
Convertible Bonds
 Principal Repayment
 Amortizing Bonds
 Bonds with sinking fund Provisions
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Indian Debt Market
 Market Segments
 Government Securities
 PSU Bonds
 Corporate Securities
 Participants
 Government, RBI, PDs, PSUs, FI s, Corporates,
Banks, Mutual funds, FII s, Provident Funds, Trusts.
 Secondary Market
 NSE-WDM only formal trading platform (NEAT)
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Indian Debt Market
Issuer
Instrument Maturity Investors
Central
Government
Dated Securities
2-20 Years
RBI,Banks,Insurance Co., PFs,
MFs, PDs,
Central
Government
T-Bills
91/364 days
RBI,Banks,Insurance Co., PFs,
MFs, PDs,Individuals
State
Government
Dated Securities
5-10 Years
Banks,Insurance Co.,PFs.
PSUs
Bonds
5-10 Years
Banks,Insurance Co., PFs, MFs,
PDs,Individuals, Corporates
Corporates
Debentures
1-12 Years
Banks, Mutual Funds,
Corporates,Individuals
Corporates,
PDs
Commercial
paper
3 months to
1 Year
Banks, Mutual Funds, FI s,
Corporates,Individuals
Banks
Certificates of
Deposit
3 months to
1 Year
Banks, Corporates
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Central Government Securities: Bonds
 Primary Issuance Process – Auction based
 Enable Higher Auction Volumes
 Broadening participation
 Ensuring efficiency
 Types of Auctions
 Discriminatory / Uniform Price Auction
 Yield / Price Based Auction
 Participants
 Banks, PFs, Insurance Co., PDs, MFs.
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Cont..
 Primary Dealers
Introduced in 1995 and at present 19
Act as underwriters and market
makers
To Strengthen Infrastructure
To divest responsibilities of RBI
To facilitate Open Market Operations
Eligibility
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Cont.
 Satellite Dealers
Second Tier in Trading and
Distribution
Provide a retail outlet
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T - Bills
 Short Term borrowing
 Issued at discount
 91 / 364 Days T – Bills
 Abolition of Ad Hoc T-Bills
 Issuance Process through Auction
 Banks and PDs
 Non Competitive Bids
 Calendar
 91 days Weekly
250 Cr. Wednesday Thursday
 364 days Fortnightly 750 Cr. Wednesday Thursday
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 Usually held till maturity
 5.5% of total secondary market
T-Bills
 Cut off Yields
 Yield given Price=
((100-Price)*365/(Price*No. of days to maturity)
 Price given Yield=
100/1+(yield%*(No.of days to maturity/365))
 For Example:
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A 182 day T-Bill auctioned on January 18 at a price of
95.510 would have an implicit yield of 9.4280%
computed as follows:
((100-95.510)*365)/(95.510*182)
State Government Bonds
 Represent market borrowimg to finance GFD
 Currenrly at 13% of GFD
 Averages about 12000 Cr.
 84000 Cr. Outstanding
 Managed by RBI, States upto 35%
 Coupon fixed at 25 bps above Central Government
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securities
 PDs allowed to particiapte
 SBI owns the largest chunk
 Low risk weight of 20%
 State Government Guaranteed Bonds
Call Money Markets
 Short Term funds ranging from overnight
funds to 14 days
 Banks and PDs allowed to borrow/lend
 UTI, FI s, MF s, Corporates allowed to lend
 Is around 32% of reserve requirements
 Call Rates
 Deposit mobilization of Banks, capital
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flows,CRR on supply side
 Tax outflows, Government borrowing,Credit
Off Take
Corporate Debt: Bonds
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 Bonds issued by PSU, FI, and Corporates
 PSU bonds can be taxable or taxfree
 Issue Process
 Authority for the issue
 Appointment of Debenture Trustees
 Offer Document
 Creation of DRR Account
 Creation of charge
 Credit rating
 Listing Criteria on NSE WDM
 Form of Holding
Corporate Debt: Bonds
 Issue management & Book building
Managed by consortium of lead
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manager, co-managers, underwriters
and brokers.
Investors indicate the amount at
different coupon rates or the amount
at cut-off coupon rate
Oversubscribed
Corporate Debt: Bonds
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 Terms of debenture Issue
 Face Value
 Price
 Credit rating
 Deemed date of allotment
 Applicable interest rate
 Interest on application money
 Interest payment
 Redemption
 Put/call option
 Letter of Allotment and Debenture Certificate
 Security
Current Yield =
Annual coupon pyt.
Current price
Capital Gains yield =
Change in price
Beginning price
Exp.
Exp. Cap.
Exp. Total
= YTM = Curr. Yld. + gains yld.
Return
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Find current yield and capital gains yield for a
9%, 10-year bond (F.V. Rs. 1000) when the bond
sells for Rs.887 and YTM = 10.91%.
Current yield
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= Rs.90
Rs.887
= 0.1015 = 10.15%.
Yield to Maturity
 The yield-to-maturity (YTM) is the
measure of a bond’s rate of return that
considers both the interest income and
any capital gain or loss.
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What is the YTM on a 10-year, 9% annual
coupon, Rs.1,000 par value bond, selling for
Rs.887?
 Must find the kd that solves this model:
Bn
INT
INT
B0 
 ... 

1
n
n
(1  k d )
(1  k d )
(1  k d )
90
90
1,000
Rs.887 
 ... 

1
10
10
(1  k d )
(1  k d )
(1  k d )
YTM  K d  10.91
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YTM = Current yield + Capital Gains yield.
Cap Gains yield = YTM - Current yield
= 10.91% - 10.15%
= 0.76%.
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Coupon Rate, YTM, MP, and Par Value
 If MP = Par(Red.) Value, then YTM = Coupon Rate
 If MP > Par (Red.) Value, then YTM < Coupon Rate
 If MP < Par (Red.) Value, then YTM > Coupon Rate
Thank You
Neeraj Goyal
Shreyance Jain
Piyush Goel
Priya Luthra
Priyanka Chadha
Pallavi Tripathi
Sudhir Sharma
Swati
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