Public Bonds

Question 1

Primary Dealer

Answer 1

Banks having an arrangements with a country to promote its debt with certain rights & obligations

Question 2

Primary Dealer RIGHT

Answer 2

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

Question 3

Primary Dealer OBLIGATION

Answer 3

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)

Question 4

Primary Dealers

Spanish Treasury

Answer 4

Bankis
Baraclays
BBVA
BNP Paribas 
22

Question 5

government bonds

Answer 5

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

Question 6

sub-sovereign

Answer 6

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

Question 7

Auctions

Answer 7

blind, purely, competitive
efficient, transparent
Treasury doesn´t actively take part
released periodically and on a public pre-agreed time window

Question 8

Types of Auction

Answer 8

America = Multiple
--> allotment is done at competitive bid of each bidder
Dutch = Single
--> allotment at same price
Dutch Modified = Mix

Question 9

Syndication

Answer 9

public (outside - preannounced calendar)
more flexible (more costly) -> distribution matters
similar to IPO
accounts are quite

Question 10

Syndication Procedures

Answer 10

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

Question 11

Private Placement

Answer 11

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)

Question 12

SSA Level

Answer 12

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

Question 13

SSA Trade-Off

Answer 13

Issuance Bonds to keep market liquid (keep product active)

need money - but not seen as secure as government

Question 14

Supranational

Answer 14

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)

Question 15

Sub-Sovereign

Answer 15

issuers sit one level beneath sovereign
stated-level issuer as opposed to federal government issuers
Ex - Germany´s States, Spanish Regions

Question 16

Agencies

Answer 16

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)

Question 17

Agencies Examples

Answer 17

Germany´s Kreditanstalt für Wiederaufbau - origins on Marshall Plan
Spains instituto de Credito Oficial (ICO) issue debt to promote small business

Question 18

SSA Terms

Answer 18

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

Question 19

Explicit Issuance

Answer 19

strongest possible form
providers creditor with direct claim on guarantor incase of default
confer strong degree of legally binding responsibility

Question 20

Maintenance Guarantee

Answer 20

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)

Question 21

Implicit Guarantee

Answer 21

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

Question 22

Implicit Guarantee Example

Answer 22

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)

Question 23

Country Specific Guarantee

Answer 23

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)

Question 24

EFSF

Answer 24

European Financial Stability Facility
Supranational
created (raises debt) to refund with money diff. states in case one country goes down
lend money in neds