FINANCIAL MARKETS

Par Value/Face Value

- Also known as the principal, it is the amount of money a holder will get back once a bond matures. In finance and accounting, par value means the stated value or face value of the instrument.

Callable Bond

Also known as a redeemable bond, callable bond allows the issuer of the bond to retain the privilege of redeeming the bond at some point before the bond reaches its date of maturity.

Corporate trustee

Corporate bonds are usually sold through a third party

Auction

It is a mode of sale or offering government securities participated by accredited Government Securities Eligible Dealers (GSEDs) such as Bank of Commerce, Bank of the Philippine Islands (BPI), BDO Capital and Investment Corporation, and Land Bank of the Philippines (LBP).

Coupon Interest Rate

It is the amount of interest that the bondholder will receive expressed as a percentage of the par value.

Tap Method

It is the sale of government securities (GS) exclusively to GSEDs whenever there is an acute shortage of securities in the market. The issuance of GS through the tap method is conducted by the BTr.

Over-the-Counter (OTC) Method

It is the sale of government securities to tax-exempt institutions, government-owned-and controlled corporations (GOCCs), and local government units (LGUs).

Municipal Bonds

Like the national government, the local governments frequently spend more than the revenues they receive.

Puttable Bond

Otherwise known as a retractable bond, a puttable bond gives the holder the right to force the issuer to repay the bond before the maturity date on the put dates.

Floating-rate notes (FRN)

Otherwise known as floaters, floating-rate notes have a variable coupon that is linked to a reference rate of interest, such as the London Interbank Offered Rate (LIBOR) or Euro Interbank Offered Rate (Euribor).

Inflation-linked bonds

Otherwise known as linkers, inflation-linked bonds indexed the principal amount and the interest payments to inflation

Maturity Date

Otherwise known as redemption date, maturity date refers to the final payment date of a loan or other financial instrument, at which point all remaining interest dues are to be paid.

indenture

The contract attached to the debenture is called

Fixed-rate bonds

These are bonds with a coupon that remains constant throughout the life of the bond.

Money market debt securities

These are debt securities with maturities of not greater than one (1) year. Treasury-bills and certificates of deposit are examples of money market debt securities

Corporate Bonds

These are long-term debt securities issued by corporations that promise the owner coupon payments or interest payments within one (1) to 30 years.

Stepped-coupon bonds

These are the variation of the fixed-rate bonds where their coupon increases during the life of the bonds.

Multi-Currency Retail Treasury Bonds (MTRBs)

They are bonds that are issued to overseas Filipinos and their qualified beneficiaries. MRTBs are issued within Philippine jurisdiction.

Junk Bonds

They are corporate bonds that are perceived to have a very high risk.

Secure Bonds

They are corporate bonds with collateral attached. Examples of secured bonds are the mortgage bonds and equipment trust certificates.

Retail Treasury Bonds (RTBs)

They are direct and unconditional obligations of the national government that primarily caters to the retail market or the end-users. They are interest-bearing bonds which carry a term of more than one (1) year.

Treasury Bonds

They are peso-denominated securities regularly issued by the national government.

Finance Companies

They commonly issue bonds as a source of long-term funds.

Brokerage Firms

They facilitate bond trading by matching up buyers and sellers of bonds in the secondary market.

Investment Banking Firms

They perform underwriting activities for the government and corporations.

Commercial Banks

They purchase bonds for their asset portfolio. They issue bonds to have a source of secondary capital.

Insurance companies and Pension Funds

They purchase funds for their asset portfolio.

Mutual Funds

They use funds received from investors to purchase bonds. Some mutual funds specialize in particular types of bonds while others invest in all types.

Unsecured Bond Debentures

Unsecured Bond Debentures - Otherwise known as a debenture, unsecured bond debentures are long-term unsecured corporate bonds that are backed only by the general creditworthiness of the issuer.

bonds

are long-term debt securities that are issued by government agencies or corporations.

Subordinated debentures

are similar to debentures except that they have a lower priority claim. This means that in the event of a default, subordinated debenture holders are paid only after non- subordinated bondholders have been paid in full.

Zero-coupon bonds

are those that pay no coupons and thus have a coupon rate of 0%.

Mortgage Bonds

are used to finance a specific project. For example, a building may be the collateral for bonds issued for its construction.

face or par value

bond's value upon maturity

cash flows

calculating the present value of the bond's future interest payments

Sinking Fund

is a method by which an organization sets aside money over time to retire its indebtedness by repaying or purchasing outstanding loans and securities held against the entity.

Bond valuation

is a technique for determining the theoretical fair value or bond price of a particular bond.

Pull to par

is the effect in which the price of a bond converges to par value as time passes. At maturity, the price of a debt instrument in good standing should equal its par or face value. Another name for this effect is "reduction of maturity".

Yield

is the rate of return received from investing in the bond.

Debt securities

refer to debt instruments that can be sold between two (2) parties wherein the basic terms suchastheamountborrowed,interestrate,andthematurityandrenewaldate,aredefined.

call premium

some bonds require the issuer to pay a premium

Government Bonds

wants to use a fiscal policy of spending more money than it receives from taxes. Under these conditions, it needs to borrow funds to cover the difference between what it wants to spend versus what it receives.

Variable-rate bonds

which may be secured or unsecured, are financial innovation spurred by increased interest-rate variability in the 1980s and 1990s.

Market Price

will be influenced by the amounts, currency, and timing of the interest payments and capital repayment due; the quality of the bond; and the available redemption yield of other comparable bonds which can be traded in the markets, among others.

Capital market debt securities

· These are debt securities with maturities of longer than one (1) year. Notes and bonds are examples of capital market debt securities.