Classifications of Bonds
[vsw id=”l7RAt_PtF9g” source=”youtube” width=”611″ height=”344″ autoplay=”no”] Global debt markets are three times larger than equity markets. As such, there are many ways in which we can classify bonds. Classification by Type of Issuer The three bond market sectors are government…
Interbank Offered Rates
[vsw id=”l7RAt_PtF9g” source=”youtube” width=”611″ height=”344″ autoplay=”no”] Floating Rate Bonds A floating rate bond is expressed as a reference rate plus a spread or margin. The spread is usually fixed, remains constant until maturity, and it is primarily a function of…
Secondary Markets for Bonds
[vsw id=”l7RAt_PtF9g” source=”youtube” width=”611″ height=”344″ autoplay=”no”] Secondary markets are “aftermarkets” where existing securities are traded among investors. The major players in these markets are large institutional investors and central banks. Below are the two main classifications of secondary markets. Organized…
Securities Issued by Sovereign Governments
[vsw id=”l7RAt_PtF9g” source=”youtube” width=”611″ height=”344″ autoplay=”no”] National governments issue bonds primarily for fiscal reasons. As a result, sovereign bonds denominated in local currency have different names such as US Treasuries, Japanese government bonds, gilts in the UK, and Bunds in…
Non-sovereign Governments, Quasi-government Entities, and Supranational Agencies
[vsw id=”l7RAt_PtF9g” source=”youtube” width=”611″ height=”344″ autoplay=”no”] Non-Sovereign Bonds Provinces, regions, states, and cities issue bonds called non-sovereign bonds or non-sovereign government bonds. These bonds are generally issued to finance schools, hospitals, highways, bridges, etc. The national government does not guarantee non-sovereign…
Debt Issued by Corporations
[vsw id=”l7RAt_PtF9g” source=”youtube” width=”611″ height=”344″ autoplay=”no”] Bilateral bank loans are the primary sources of debt financing for most corporations. However, other sources of financing are available for corporations of various sizes. Bilateral Loan A bilateral loan originates from a single…
Short-term Funding Alternatives Available to Banks
[vsw id=”l7RAt_PtF9g” source=”youtube” width=”611″ height=”344″ autoplay=”no”] Funding markets are markets from which debt issuers borrow to meet their financial needs. Banks have access to funds obtained from the retail market, which are the deposits from their customers. However, these financial…
Repurchase Agreements (Repos)
[vsw id=”l7RAt_PtF9g” source=”youtube” width=”611″ height=”344″ autoplay=”no”] A repurchase agreement (or simply “repo”) is the sale of a security with a simultaneous agreement by the seller to buy back the same security from the same buyer at an agreed-upon price. When…
The Main Functions of the Financial System
[vsw id=”LFJYcV5EL-w” source=”youtube” width=”611″ height=”344″ autoplay=”no”] Achievement of Purposes People use the financial system for various reasons, which can be broken down into six main purposes. However, regardless of the purpose, the financial system is more efficient when transactions are…
