Debt Market

Definition : 

               This is financial market in which the participants are provided with the issuance and trading of  debt securities.This market is also called Bond market or credit market. 


Examples : Loans,Bonds and Debentures etc..

It is consist of bond and money markets,the essence is borrowing and lending of cash.

Difference between Money and Bond market :

Money market : 

           The lending or borrowing money is lessthan one year by participants.

Bond Market :

           The lending or borrowing money is morethan one year or more by participants.

The other name of debt market is Fixed income securities because the size of cash flow and and time period will be fixed before enter into agreement.It does not necessarily guarantee a fixed returns.

For example, consider a 7-year bond that pays 9% per annum interest and issued by a company. The 9% per annum interest is not the guaranteed return for the following reasons.

These debt market returns will be depends on the below factors:

Credit risk : The companey may not able to pay interest and principal on time.

Market Risk :In the above senario, the invstor hold the above bond for 7 years but investor want that money end of the 5 th year the sale price may be higher or lower than the initail purchaes price this called capital gain or loss. this will be happen by market risk.

Reinvestment risk : if your investment horizonis seven years,there should be no interm payments. but incase your investment are to  be reinvested untile the horizonat unknown future interest rates.

In this above example, the 9% coupon in the first year will have to reinvested for six years at the end of one year; the 9% coupon in the second year will have to be reinvested for five years at the of second year; and so on.

Above debt market clasified many categories based on different parameters.

a. Cash flow pattern

b.Tenure 

c.Issuer

d.Credit quality

e.Interest rate Types