Public Bonds Flashcards
Primary Dealer
Banks having an arrangements with a country to promote its debt with certain rights & obligations
Primary Dealer RIGHT
participation in auctions & access to 2nd round on auctions
stripping bonds
other debt management operations (syndications)
receipt of timely updates on treasury´s financial policy
Primary Dealer OBLIGATION
Auction - buy certain amount everytime A
guarantee liquidity in 2nd market complying with quoting obligation
–> B/O in electronic platform
–> during certain time every day
–> given size & B/O Spread
Provide info to Treasury (market colour & turnover with end-investors periodic return)
Primary Dealers
Spanish Treasury
Bankis Baraclays BBVA BNP Paribas 22
government bonds
most secured
strong incentive to pay back money to retain access to C.M & power to print money if needed
these can also be issued by entities (provinces/enterprises) for which n.G agreed to take responsibility
sub-sovereign
lower level - subnational
city, province, state
municipal Bond
generally riskier because city/regions has no power to print money or take control of foreign exchange
use to finance projects (school, road building)
Many countries they´ve tried to reduce these to limit indebtedness but this assures steady flow of loan business to bank
Auctions
blind, purely, competitive
efficient, transparent
Treasury doesn´t actively take part
released periodically and on a public pre-agreed time window
Types of Auction
America = Multiple --> allotment is done at competitive bid of each bidder Dutch = Single --> allotment at same price Dutch Modified = Mix
Syndication
public (outside - preannounced calendar)
more flexible (more costly) -> distribution matters
similar to IPO
accounts are quite
Syndication Procedures
a) Treasury mandates a groups of PD and collects orders
b) open order book and contacts investors (normally open for 1 trading day)
c) asks until final price is fixed
Transparency - terms of their announced level price (communication to accounts)
but makes them less flexible
Private Placement
investors are the one approaching issuer
normally investors needs very specific/unique terms
E.x: insurance company needs very spec. yield to meet demand or match Asset - Liability PF
Not very frequent/popular as noone likes to deal with illiquid instruments (insurance company needs to meet cash in future)
SSA Level
bridge market between government - corporate bonds
bonds regarded as secure investments due
a) special status conferred or
b) as a result of explicit/implicit guarantee structures
entities similar to issuing government bonds but regional level
SSA Trade-Off
Issuance Bonds to keep market liquid (keep product active)
need money - but not seen as secure as government
Supranational
institutions which mandate is to extend across national borders
governed by representatives/SH from a nr. of countries
Ex: IBRD, EIB,ADB, IFC (internat. finance corporate - part of World bank group)
Sub-Sovereign
issuers sit one level beneath sovereign
stated-level issuer as opposed to federal government issuers
Ex - Germany´s States, Spanish Regions
Agencies
used as an inclusive term to define institution performing a task on behalf of its governing sovereign/sovereign-linked state
Blurred Definition:
- diversity of public mandates
- nature/degree of public/private
- wide range of institutions (public banks, infrastructure develop. bodies, export financiers, social security facilities)
Agencies Examples
Germany´s Kreditanstalt für Wiederaufbau - origins on Marshall Plan
Spains instituto de Credito Oficial (ICO) issue debt to promote small business
SSA Terms
They all differ whole/in part in terms of
a) RS with the governing sovereign or wider public sector
b) mandates & underlying business objectives
c) guarantee & support structures
Explicit Issuance
strongest possible form
providers creditor with direct claim on guarantor incase of default
confer strong degree of legally binding responsibility
Maintenance Guarantee
G. ensures that institutions has sufficient financial support to meet obligation in timely manner
this kind is not formal G & not usually grant an right to 3rd parties (issuers ext. creditors)
Implicit Guarantee
issuers are perceived to have FULL SUPPORT of their sovereign in case issuers becomes distress/default
WHY?
- owns part/all of the issuers
- agency is believed to carry out a duty that´s significant or of national importance
Implicit Guarantee Example
Freddi Mac –> U.S housing Mortgages
not specifically covered by US government but plays significant role as government sponsored entities
(makes them of vital importance)
Country Specific Guarantee
wide range –> nature & diversity of various form of support
Germany - issuers can benefit from statutory G. or “Gewährhaftung)
–> give creditor the right to implant direct claim against G. (but 1st have to lodged claim against issuer)
France - issuers are fully owned / controlled by french government (Etablissements publics)
they cannot go bankrupt nor asset confiscated if fail to fulfill obligations
but no timely payments guaranteed (thus court)
EFSF
European Financial Stability Facility
Supranational
created (raises debt) to refund with money diff. states in case one country goes down
lend money in neds
