Bond market

The bond market is the part in the medium and long term of the market of the Interest rate, larger gone of capital of the world.

Treated products

Exchange themselves there:

above all the products Derived S:

future on Government loans, which are the directing market;
Swaps of interest rate;
of the Credit default swap S and others derived from credit;
etc

as well as obligation S:

is without risk, i.e. emitted by the States of the principal developed countries, primarily in their own currency, in which case they are called Government loans; they are most liquid and they represent the main part of the transactions of obligations;
is involving a reasonable credit risk, i.e. emitted by fairly developed, even developed but heavily in debt States, or many public agencies, local government agencies, and undertaken principal economies, profiting from a financial Notation suitable on behalf of the agencies (Standard and Poor' S, Moody' S, Fitch Ratings, etc) specialized, or even generally the obligations resulting from operations of Titrisation. If the credit risk is very weak and the very good notation, one indicates them in English by the expression high rank .
comprising a strong credit risk, is emitted by States or other entities of emergent countries or by companies profiting from a weak notation. In English, one indicates them by the expression high yield , i.e. high output , or Junk jump S : these obligations are emitted by companies profiting from a very weak notation, in general lower has BBB- (Standard and Poor' S, Fitch) or Baa3 (Moody' S). Any investment in these obligations is then described as " spéculatif".

Distinction primary market, resale market

For the obligations (as it is the case also for the action S):

the expression Primary market indicates the issues of new bonds, which the placement near the institutional investors and, possibly, private individuals, is assured, generally in Prise firm by a group of banks of investment chosen by the transmitter.
the expression Resale market indicates the transactions on the already emitted obligations.

Directing market

In the United States and in the euro area, like, to a lesser extent, in Japan and in the United Kingdom, there exist permanently two markets of reference of interest rates from 0 to 30, even 50 years, of a very large Liquidité:

that of principal the Government loans;
that of the swap S against IBOR.

For interest rates of the other currencies, that is a little less true.

The market of the Government loans provides the interest rate without risk ; that of the swaps interbank interest rates .

The rates of the Government loans atrate fix are formed according to supply and instantaneous on the future :

for the euro area, on the contracts in the long term on German Government loans (Bund and Bobl, primarily);
in the United States, on the contracts in the long term of bearing CBOT on T-Note S.

These future is the true directing markets of interest rates in the medium and long term. They give points of anchoring to the curved of the rates.

Pricing of the rates of the obligations

The valorization of an instrument withfixed rate involving a credit risk (Ready, obligation, etc) is carried out theoretically in:

bringing up to date the bill book of financial flows of the instrument with the discount coefficients applicable to the Government loans;
by adding a to him premium of liquidity , i.e. an estimate of the cost of negotiation of the instrument;
and finally by adding an estimate of the expectation of the risk of defect of the borrower throughout loan.

In practice, the modeling of the credit risks posed by the complicated and difficult company being, premium of liquidity and expectation of the risk of defect are often replaced in the spirit of the operators by a global value, said credit spread in English and… Spread of credit in Franglais of the markets of capital. This one is established above all by comparison with the way in which comparable debts are already evaluated by the market.

See too

The expression Money market indicates the current portion of the markets of interest rate, i.e., according to the banks, less than one to two years. Among the products with the edge of the two parts, one finds:

the Repo S, operations of short-term refinancing of titles (obligations and others) which are generally, them, in the long run;
as well as the future on IBOR:

contracts on Euribor of the LIFFE,
contracts known as Euro-dollar on LIBOR with dimensions according to the time slot, on CME with Chicago, LIFFE with London or the Simex with Singapore,
etc

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