Public Debt Market Flashcards
What is the secondary debt market?
The market where public debt Fixed Income Securities are traded
What are fixed income securities?
Asset where the issuer pledfes to play a cash low periodic payment and a repayment of the principal at the end of its economic term, in return the buyer has to pay a cash amount when purchased
What are the differences between the Treasury and the Bank of Spain?
The Treasury meets the financial need of the state and issues securities, whereas the Bank of Spain, is responsible for organing the secondary market where these are traded.
What are the key aims of the Treasury?
Achieve stable, continuous financing, reduce the cost of it, maintain efficient levels of market liquidity, and offer attractive financial instruments
What are the types of fixed income securities?
T-bills (<1 year maturity, no coupons), notes (>18 months <5 years, semi/annual coupons), and bonds (>5 years, semi/annual coupons)
What are TIPS?
Treasury inflation protected securities, the coupons are defined in real, not nominal terms, the buyer will receive the rate plus inflation
What are Strips?
They are state notes and bonds where securities with implicit return are transformed into instrument with explicit return (zero-coupon bonds)
What is the procedure that the Spanish Treasury uses to issue new debt?
Primary market auctions. Tender issues, composed of non and competitive bids, then the bank of Spain sets the volume, the marginal and weighted average price, these two taking into account the offers
How do you calculate the price of a bond?
Its price is the discountend current value of the future coupons and the principal, taking into account interest rates
How do you calculated accrued interests?
By multipliying the value of the coupon with the fraction of days since last payment and days between coupon payments
What is the dirty price?
The price that the buyer must pay
What is the clean price?
The dirty price minus the accrued interests
What are the sources of risk of a bond?
Interest/price risk, reinvestment risk, lack of liquidity risk, and credit/insolvency risk.
