Bond market
The bond 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. This is in the form of bonds, but it may include notes, so on, its primary goal is to provide long-term funding for public and private expenditures.> The bond market has been dominated by the United States, which accounts for about 44% of the market. As of 2009, the size of the worldwide bond market is estimated at $82.2 trillion, of which the size of the outstanding U. S. bond market debt was $31.2 trillion according to Bank for International Settlements, or alternatively $35.2 trillion as of Q2 2011 according to Securities Industry and Financial Markets Association. The bond market is part of the credit market, with bank loans forming the other main component; the global credit market in aggregate is about 3 times the size of the global equity market. Bank loans are not securities under the Securities and Exchange Act, but bonds are and are therefore more regulated.
Bonds are not secured by collateral, are sold in small denominations of around $1,000 to $10,000. Unlike bank loans, bonds may be held by retail investors. Bonds are more traded than loans, although not as as equity. Nearly all of the average daily trading in the U. S. bond market takes place between broker-dealers and large institutions in a decentralized over-the-counter market. However, a small number of bonds corporate ones, are listed on exchanges. Bond trading prices and volumes are reported on FINRA's Trade Reporting and Compliance Engine, or TRACE. An important part of the bond market is the government bond market, because of its size and liquidity. Government bonds are used to compare other bonds to measure credit risk; because of the inverse relationship between bond valuation and interest rates, the bond market is used to indicate changes in interest rates or the shape of the yield curve, the measure of "cost of funding". The yield on government bonds in low risk countries such as the United States or Germany is thought to indicate a risk-free rate of default.
Other bonds denominated in the same currencies will have higher yields, in large part because other borrowers are more than the U. S. or German Central Governments to default, the losses to investors in the case of default are expected to be higher. The primary way to default is to not pay in full or not pay on time; the Securities Industry and Financial Markets Association classifies the broader bond market into five specific bond markets. Corporate Government and agency Municipal Mortgage-backed, asset-backed, collateralized debt obligations Funding Bond market participants are similar to participants in most financial markets and are either buyers of funds or sellers of funds and both. Participants include: Institutional investors Governments Traders IndividualsBecause of the specificity of individual bond issues, the lack of liquidity in many smaller issues, the majority of outstanding bonds are held by institutions like pension funds and mutual funds. In the United States 10% of the market is held by private individuals.
Amounts outstanding on the global bond market increased by 2% in the twelve months to March 2012 to nearly $100 trillion. Domestic bonds accounted for 70 % of the international bonds for the remainder; the United States was the largest market with 33% of the total followed by Japan. As a proportion of global GDP, the bond market increased to over 140% in 2011 from 119% in 2008 and 80% a decade earlier; the considerable growth means that in March 2012 it was much larger than the global equity market which had a market capitalisation of around $53 trillion. Growth of the market since the start of the economic slowdown was a result of an increase in issuance by governments; the outstanding value of international bonds increased by 2% in 2011 to $30 trillion. The $1.2 trillion issued during the year was down by around a fifth on the previous year's total. The first half of 2012 was off to a strong start with issuance of over $800 billion; the United States was the leading center in terms of value outstanding with 24% of the total followed by the UK 13%.
According to the Securities Industry and Financial Markets Association, as of Q1 2017, the U. S. bond market size is: Note that the total federal government debts recognized by SIFMA are less than the total bills and bonds issued by the U. S. Treasury Department, of some $19.8 trillion at the time. This figure is to have excluded the inter-governmental debts such as those held by the Federal Reserve and the Social Security Trust Fund. For market participants who own a bond, collect the coupon and hold it to maturity, market volatility is irrelevant, but participants who buy and sell bonds before maturity are exposed to many risks, most changes in interest rates. When interest rates increase, the value of existing bonds falls, since new issues pay a higher yield; when interest rates decrease, the value of existing bonds rises, since new issues pay a lower yield. This is the fundamental concept of bond market volatility—changes in bond prices are inverse to changes in interest rates. Fluctuating interest rates are part of a country's monetary policy and bond market volatility is a response to expected monetary policy and economic changes.
Economists' views of economic indicators versus actual released data c
Stock certificate
In corporate law, a stock certificate is a legal document that certifies ownership of a specific number of shares or stock in a corporation. Certificates may have been required to evidence entitlement to dividends, with a receipt for the payment being endorsed on the back. Over time, these functions have been rendered redundant by statutory schemes to streamline the administrative burden on corporations, to facilitate and streamline trading on a stock exchange. For example, most jurisdictions now impose an obligation on corporations to pay dividends to shareholders registered at a relevant point of time without the need to produce the share certificate as proof of entitlement and the certificate is no longer required to be produced with a transfer of a shareholding. In some jurisdictions today, the issue of paper stock certificates may be dispensed with, at least in some circumstances, many corporations now provide a holding statement in lieu of a share certificate for each parcel of shares owned.
Most jurisdictions now require corporations to maintain records of ownership or transfers of shareholdings, do not permit share certificates to be issued to bearer. Ruben Schalk, history student at the Universiteit Utrecht, discovered the so far oldest share certificate in the world in the Westfries Archief in Hoorn; the certificate was issued by the VOC-chamber Enkhuizen. It was sold to Pieter Hermanszoon Boode; the second page records the payments of dividend. In the United States and other countries, electronic registration is supplanting the stock certificate, with both public and private companies no longer being required to issue paper certificates. In the United States over 420 of the 7,000-plus publicly traded securities do not issue paper certificates; the United States' Central Securities Depository, the DTC, has continued to promote efforts to eliminate paper stock certificates, a process called dematerialization. Countries around the world have adopted similar initiatives with many countries setting deadlines for statutory dematerialization.
Brokers may charge up to $500 for issuing a paper certificate, though this fee can be avoided by either holding share in street name or registering shares directly with the stock transfer agent and having them issue the certificate. Another alternative to both paper and electronic registration is the use of paper-equivalent electronic stock certificates. Forty-seven states have enacted legislation equivalent to the Uniform Electronic Transactions Act, which formalizes equivalency for electronic signatures "in writing" requirements. This, together with the enactment of legislation permitting the use of "facsimile" signatures on certificates, has given rise to software as a service technology for private companies to create and manage paper-equivalent electronic stock certificates. In Sweden, share certificates have been abolished, people using electronic shares instead. Share certificates may exist in Sweden, but only if the shares are not listed on any stock exchange in Sweden, the availability of share certificates has nothing to do with voting in shareholders' general meetings.
Sometimes a shareholder with a stock certificate can give a proxy to another person to allow them to vote the shares in question. A shareholder without a share certificate may give a proxy to another person to allow them to vote the shares in question. Voting rights are defined by the corporation's charter and corporate law. Stock certificates are divided into two forms: registered stock certificates and bearer stock certificates. A registered stock certificate is only evidence of title, a record of the true holders of the shares will appear in the stockholder's register of the corporation. A bearer stock certificate, as its name implies is a bearer instrument, physical possession of the certificate entitles the holder to exercise all legal rights associated with the stock. Bearer stock certificates are becoming uncommon: they were popular in offshore jurisdictions for their perceived confidentiality, as a useful way to transfer beneficial title to assets without payment of stamp duty. International initiatives have curbed the use of bearer stock certificates in offshore jurisdictions, tend to be available only in onshore financial centres, although they are seen in practice.
A stock certificate represents a legal proprietary interest in the common stock or assets of the issuer corporation. The certificate evidences a chose in action against the issuer to collect dividends and to influence the issuer through voting pursuant to the issuer's charter and bylaws, which are implied or incorporated by reference as terms on the face of the certificate. Stockholder rights are subject to the solvency requirements of issuer's general creditors and to any terms and conditions validly placed upon the face of the stock certificate which are part of the total agreement between the particular stockholder and the issuer. Stock certificates are transferred as negotiable or quasi-negotiable instruments by indorsement and delivery, issuer charters require that transfers must be registered with the issuer in order for the transferee to join as a member o
Secondary market
The secondary market called the aftermarket and follow on public offering is the financial market in which issued financial instruments such as stock, bonds and futures are bought and sold. Another frequent usage of "secondary market" is to refer to loans which are sold by a mortgage bank to investors such as Fannie Mae and Freddie Mac; the term "secondary market" is used to refer to the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the second market. With primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly from issuers such as corporations issuing shares in an IPO or private placement, or directly from the federal government in the case of treasuries. After the initial issuance, investors can purchase from other investors in the secondary market; the secondary market for a variety of assets can vary from loans to stocks, from fragmented to centralized, from illiquid to liquid.
The major stock exchanges are the most visible example of liquid secondary markets - in this case, for stocks of publicly traded companies. Exchanges such as the New York Stock Exchange, London Stock Exchange and Nasdaq provide a centralized, liquid secondary market for the investors who own stocks that trade on those exchanges. Most bonds and structured products trade “over the counter,” or by phoning the bond desk of one’s broker-dealer. Loans sometimes trade online using a Loan Exchange. In the secondary market, securities are sold by and transferred from one investor or speculator to another, it is therefore important that the secondary market be liquid. As a general rule, the greater the number of investors that participate in a given marketplace, the greater the centralization of that marketplace, the more liquid the market. Fundamentally, secondary markets mesh the investor's preference for liquidity with the capital user's preference to be able to use the capital for an extended period of time.
Accurate share price allocates scarce capital more efficiently when new projects are financed through a new primary market offering, but accuracy may matter in the secondary market because: 1) price accuracy can reduce the agency costs of management, make hostile takeover a less risky proposition and thus move capital into the hands of better managers, 2) accurate share price aids the efficient allocation of debt finance whether debt offerings or institutional borrowing. The term may refer to markets in things of value other than securities. For example, the ability to buy and sell intellectual property such as patents, or rights to musical compositions, is considered a secondary market because it allows the owner to resell property entitlements issued by the government. Secondary markets can be said to exist in some real estate contexts as well; these have similar functions as secondary stock and bond markets in allowing for speculation, providing liquidity, financing through securitization.
It facilitates marketability of the long term instrument. It provides instant valuation of securities caused by changes in the environment. Private equity secondary market refers to the buying and selling of pre-existing investor commitments to private equity funds. Sellers of private equity investments sell not only the investments in the fund but their remaining unfunded commitments to the funds. Due to the increased compliance and reporting obligations enacted in the Sarbanes-Oxley Act of 2002, private secondary markets began to emerge, such as SecondMarket and SecondaryLink; these markets are only available to institutional or accredited investors and allow trading of unregistered and private company securities. Digital currency exchanges are being regarded as secondary markets. Aftermarket Clean Energy Bank Grey market Primary market Third market Fourth market Original equipment manufacturer Private equity secondary market Reseller
Swap (finance)
A swap is a derivative in which two counterparties exchange cash flows of one party's financial instrument for those of the other party's financial instrument. The benefits in question depend on the type of financial instruments involved. For example, in the case of a swap involving two bonds, the benefits in question can be the periodic interest payments associated with such bonds. Two counterparties agree to exchange one stream of cash flows against another stream; these streams are called the legs of the swap. The swap agreement defines the dates when the cash flows are to be paid and the way they are accrued and calculated. At the time when the contract is initiated, at least one of these series of cash flows is determined by an uncertain variable such as a floating interest rate, foreign exchange rate, equity price, or commodity price; the cash flows are calculated over a notional principal amount. Contrary to a future, a forward or an option, the notional amount is not exchanged between counterparties.
Swaps can be in cash or collateral. Swaps can be used to hedge certain risks such as interest rate risk, or to speculate on changes in the expected direction of underlying prices. Swaps were first introduced to the public in 1981 when IBM and the World Bank entered into a swap agreement. Today, swaps are among the most traded financial contracts in the world: the total amount of interest rates and currency swaps outstanding was more than $348 trillion in 2010, according to Bank for International Settlements. Most swaps are traded over-the-counter, "tailor-made" for the counterparties; some types of swaps are exchanged on futures markets such as the Chicago Mercantile Exchange, the largest U. S. futures market, the Chicago Board Options Exchange, IntercontinentalExchange and Frankfurt-based Eurex AG. The Bank for International Settlements publishes statistics on the notional amounts outstanding in the OTC derivatives market. At the end of 2006, this was USD more than 8.5 times the 2006 gross world product.
However, since the cash flow generated by a swap is equal to an interest rate times that notional amount, the cash flow generated from swaps is a substantial fraction of but much less than the gross world product—which is a cash-flow measure. The majority of this was due to interest rate swaps; these split by currency as: Source: "The Global OTC Derivatives Market at end-December 2004", BIS, "OTC Derivatives Market Activity in the Second Half of 2006", BIS, Usually, at least one of the legs has a rate, variable. It can depend on the total return of a swap, an economic statistic, etc.. The most important criterion is that it comes from an independent third party, to avoid any conflict of interest. For instance, LIBOR is published by Intercontinental Exchange; as the International Finance in Practice box suggests, the market for currency swaps developed first. Today, the interest rate swap market is larger. Size is measured by notional principal, a reference amount of principal for determining interest payments.
The exhibit indicates that both markets have grown since 2000, but that the growth in interest rate swap has been by far more dramatic. The total amount of interest rate swaps outstanding increased from $48,768 billion at year-end 2000 to $349.2 trillion by year-end 2009, an increase of 616%. Total outstanding currency swaps increased 417%, from $3,194 billion at year-end 2000 to over $16.5 trillion by year-end 2009. A swap bank is a generic term to describe a financial institution that facilitates swaps between counterparties. A swap bank can be an international commercial bank, an investment bank, a merchant bank, or an independent operator. A swap bank serves as either swap dealer; as a broker, the swap bank does not assume any risk of the swap. The swap broker receives a commission for this service. Today, most swap banks serve as dealers or market makers; as a market maker, a swap bank is willing to accept either side of a currency swap, later on-sell it, or match it with a counterparty. In this capacity, the swap bank therefore assumes some risks.
The dealer capacity is more risky, the swap bank would receive a portion of the cash flows passed through it to compensate it for bearing this risk. The two primary reasons for a counterparty to use a currency swap are to obtain debt financing in the swapped currency at an interest cost reduction brought about through comparative advantages each counterparty has in its national capital market, and/or the benefit of hedging long-run exchange rate exposure; these reasons seem straightforward and difficult to argue with to the extent that name recognition is important in raising funds in the international bond market. The two primary reasons for swapping interest rates are to better match maturities of assets and liabilities and/or to obtain a cost savings via the quality spread differential. In an efficient market without barriers to capital flows, the cost-savings argument through a QSD is difficult to accept, it implies that an arbitrage opportunity exists because of some mispricing of the default risk premiums on different types of debt instruments.
If the QSD is one of the primary reasons for the existence of interest rate swaps, one would expect arbitrage to eliminate it over time and that the growth of the swap market would decrease. Thus, the arbitrage argument does not seem to have much merit. One must rely on an argument of market completeness for the existence and growth of interest rate swaps; that is, all types of debt instruments are not available for all borrowers. Thus, the interest rate swap
United States Treasury security
A United States Treasury security is a government debt instrument issued by the United States Department of the Treasury to finance government spending as an alternative to taxation. Treasury securities are referred to as Treasuries. Since 2012 the management of government debt has been arranged by the Bureau of the Fiscal Service, succeeding the Bureau of the Public Debt. There are four types of marketable treasury securities: Treasury bills, Treasury notes, Treasury bonds, Treasury Inflation Protected Securities. There are several types of non-marketable treasury securities including State and Local Government Series, Government Account Series debt issued to government-managed trust funds, savings bonds. All of the marketable Treasury securities are liquid and are traded on the secondary market; the non-marketable securities are issued to subscribers and cannot be transferred through market sales. Federal Reserve Banks are required to hold collateral equal in value to the Federal Reserve notes that the Federal Reserve Bank puts into circulation.
This collateral is chiefly held in the form of U. S. Treasury debt and government-sponsored enterprise securities. To finance the costs of World War I, the U. S. Government increased government debt, called war bonds. Traditionally, the government borrowed from other countries, but there were no other countries from which to borrow in 1917; the Treasury raised funding throughout the war by selling $21.5 billion in'Liberty bonds.' These bonds were sold at subscription where officials created coupon price and sold it at par value. At this price, subscriptions could be filled in as little as one day, but remained open for several weeks, depending on demand for the bond. After the war, the Liberty bonds were reaching maturity, but the Treasury was unable to pay each down with only limited budget surpluses; the resolution to this problem was to refinance the debt with variable short and medium-term maturities. Again the Treasury issued debt through fixed-price subscription, where both the coupon and the price of the debt were dictated by the Treasury.
The problems with debt issuance became apparent in the late 1920s. The system suffered from chronic over-subscription, where interest rates were so attractive that there were more purchasers of debt than supplied by the government; this indicated. As government debt was undervalued, debt purchasers could buy from the government and sell to another market participant at a higher price. In 1929, the US Treasury shifted from the fixed-price subscription system to a system of auctioning where'Treasury Bills' would be sold to the highest bidder. Securities were issued on a pro rata system where securities would be allocated to the highest bidder until their demand was full. If more treasuries were supplied by the government, they would be allocated to the next highest bidder; this system allowed the market, rather than the government. On December 10, 1929, the Treasury issued its first auction; the result was the issuing of $224 million three-month bills. The highest bid was at 99.310 with the lowest bid accepted at 99.152.
"Treasury bill" redirects here. Note that the Bank of England issues these in the United Kingdom. Treasury bills mature in less. Like zero-coupon bonds, they do not pay interest prior to maturity. Regular weekly T-Bills are issued with maturity dates of 28 days, 91 days, 182 days, 364 days. Treasury bills are sold by single-price auctions held weekly. Offering amounts for 13-week and 26-week bills are announced each Thursday for auction at 11:30 a.m. on the following Monday and settlement, or issuance, on Thursday. Offering amounts for 4-week bills are announced on Monday for auction the next day, Tuesday at 11:30 a.m. and issuance on Thursday. Offering amounts for 52-week bills are announced every fourth Thursday for auction the next Tuesday at 11:30 am, issuance on Thursday. Purchase orders at TreasuryDirect must be entered before 11:00 on the Monday of the auction; the minimum purchase, effective April 7, 2008, is $100. Mature T-bills are redeemed on each Thursday. Banks and financial institutions primary dealers, are the largest purchasers of T-bills.
Like other securities, individual issues of T-bills are identified with a unique CUSIP number. The 13-week bill issued three months after a 26-week bill is considered a re-opening of the 26-week bill and is given the same CUSIP number; the 4-week bill issued two months after that and maturing on the same day is considered a re-opening of the 26-week bill and shares the same CUSIP number. For example, the 26-week bill issued on March 22, 2007, maturing on September 20, 2007, has the same CUSIP number as the 13-week bill issued on June 21, 2007, maturing on September 20, 2007, as the 4-week bill issued on August 23, 2007 that matures on September 20, 2007. During periods when Treasury cash balances are low, the Treasury may sell cash management bills; these are sold by auction just like weekly Treasury bills. They differ in that they are irregular in amount and day of the week for auction and maturity; when CMBs mature on the same day as a regular weekly bill Thursday, they are said to be on-cycle.
The CMB is considered another reopening of the bill and has the
Security (finance)
A security is a tradable financial asset. The term refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some jurisdictions the term excludes financial instruments other than equities and fixed income instruments. In some jurisdictions it includes some instruments that are close to equities and fixed income, e.g. equity warrants. In some countries and languages the term "security" is used in day-to-day parlance to mean any form of financial instrument though the underlying legal and regulatory regime may not have such a broad definition. In the United Kingdom, the national competent authority for financial markets regulation is the Financial Conduct Authority. In the United States, a security is a tradable financial asset of any kind. Securities are broadly categorized into: debt securities equity securities derivatives; the company or other entity issuing the security is called the issuer. A country's regulatory structure determines. For example, private investment pools may have some features of securities, but they may not be registered or regulated as such if they meet various restrictions.
Securities may be represented by a certificate or, more "non-certificated", in electronic or "book entry" only form. Certificates may be bearer, meaning they entitle the holder to rights under the security by holding the security, or registered, meaning they entitle the holder to rights only if he or she appears on a security register maintained by the issuer or an intermediary, they include shares of corporate stock or mutual funds, bonds issued by corporations or governmental agencies, stock options or other options, limited partnership units, various other formal investment instruments that are negotiable and fungible. Securities may be classified according to many categories or classification systems: Currency of denomination Ownership rights Terms to maturity Degree of liquidity Income payments Tax treatment Credit rating Industrial sector or "industry". Region or country Market capitalization State Securities are the traditional way that commercial enterprises raise new capital; these may be an attractive alternative to bank loans depending on their pricing and market demand for particular characteristics.
Another disadvantage of bank loans as a source of financing is that the bank may seek a measure of protection against default by the borrower via extensive financial covenants. Through securities, capital is provided by investors who purchase the securities upon their initial issuance. In a similar way, a government may issue securities too. Investors in securities may be retail, i.e. members of the public investing other than by way of business. The greatest part of investment, in terms of volume, is wholesale, i.e. by financial institutions acting on their own account, or on behalf of clients. Important institutional investors include investment banks, insurance companies, pension funds and other managed funds; the traditional economic function of the purchase of securities is investment, with the view to receiving income or achieving capital gain. Debt securities offer a higher rate of interest than bank deposits, equities may offer the prospect of capital growth. Equity investment may offer control of the business of the issuer.
Debt holdings may offer some measure of control to the investor if the company is a fledgling start-up or an old giant undergoing'restructuring'. In these cases, if interest payments are missed, the creditors may take control of the company and liquidate it to recover some of their investment; the last decade has seen an enormous growth in the use of securities as collateral. Purchasing securities with borrowed money secured by other securities or cash itself is called "buying on margin". Where A is owed a debt or other obligation by B, A may require B to deliver property rights in securities to A, either at inception or only in default. For institutional loans, property rights are not transferred but enable A to satisfy its claims in the event that B fails to make good on its obligations to A or otherwise becomes insolvent. Collateral arrangements are divided into two broad categories, namely security interests and outright collateral transfers. Commercial banks, investment banks, government agencies and other institutional investors such as mutual funds are significant collateral takers as well as providers.
In addition, private parties may utilize stocks or other securities as collateral for portfolio loans in securities lending scenarios. On the consumer level, loans against securities have grown into three distinct groups over the last decade: 1) Standard Institutional Loans offering low loan-to-value with
Face value
The face value is the value of a coin, stamp or paper money, as printed on the coin, stamp or bill itself by the issuing authority. The face value of coins, stamps, or bill is its legal value. However, their market value need not bear any relationship to the face value. For example, some rare coins or stamps may be traded at prices above their face value; the face value of bonds represents the principal or redemption value. Interest payments are expressed as a percentage of face value. Before maturity, the actual value of a bond may be greater or less than face value, depending on the interest rate payable and the perceived risk of default; as bonds approach maturity, actual value approaches face value. In the case of stock certificates, face value is the par value of the stock. In the case of common stock, par value is symbolic. In the case of preferred stock, dividends may be expressed as a percentage of par value; the face value of a life insurance policy is the death benefit. In the case of so-called "double indemnity" life insurance policies, the beneficiary receives double the face value in case of accidental death.
The face value of property, casualty or health insurance policies is the maximum amount payable, as stated on the policy's face or declarations page. Face value can be used to refer to the apparent value of something other than a financial instrument, such as a concept or plan. In this context, "face value" refers to the apparent merits of the idea, before the concept or plan has been tested. Face value refers to the price printed on a ticket to a sporting event, concert, or other event; the practice of re-selling tickets for more than face value is known as ticket scalping. Taking someone at face value is assuming another person's suggestion, offer, or proposal is sincere, rather than a bargaining ploy. Denomination Denomination Gresham's law Nominal value Melt value Par value Place value Token money Buchanan, T. B.. Principles of Money and Coinage. Chamber of Commerce and Board of Trade. P. 22. Retrieved September 5, 2017. Allen, L.. The Encyclopedia of Money. ABC-CLIO. P. 193. ISBN 978-1-59884-251-7.
Retrieved September 5, 2017. Conant, C. A.. Book II-The principles of the value of money: The importance of definitions; the Principles of Money and Banking. Harper. P. 280. Retrieved September 5, 2017
.jpg)
