International Bond Market

International Bond Market(A Study on Citi Bank)

International Finance

Vipin VettickalOlgay AdanaAydan Fatullayeva

Citi Bank at a Glance

Citi, the leading global bank, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. Citi provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services, and wealth management.

Consumer businesses Institutional businesses

Citi bank Business

Retail Banking Citi Branded Credit Cards Citi Retail Services Citi Commercial Bank Citi Mortgage

Consumer businesses

Securities & Banking Citi Markets Corporate & Investment Banking Citi Private Bank Citi Treasury & Trade solution Citi Securities and Fund services

Institutional Businesses

WHAT IS BOND MARKET ?

The bond market is a financial market where participants buy and sell debt securities , usually in the form of bonds. The bond market primarily includes:- I) Government-issued securities. II) Corporate debt securities.

International Bond Market

A bond issued in a country or currency other than that of the investor or broker. They include Eurobonds, which are issued in a foreign currency, foreign bonds, which are issued by a foreign government or corporation in the domestic market, and global bonds, which are issued in both domestic and international markets.

INTERNATIONAL BOND IS FURTHER CLASSIFIED IN THREE TYPES Domestic Bond Euro Bond Foreign Bond

MEANING OF 'INTERNATIONAL BOND'

It is a debt market

It is a fund raising market

Fixed income instrument

Issued in foreign currency

It channelizing savings

FEATURES OF INTERNATIONAL BOND

Step 1:-A borrower will contact an investment banker.

Step 2:- The lead manager will invite other banks.

Step 3:-The managing group and banks will serve as underwriters for the underwriter issues.

Step 4:-The various members of the underwriting syndicate receive a portion of the spread.

Step 5:-The lead manager receives the full spread.

THE COMMON PROCESS OF ISSUING BOND

Straight Fixed-Rate

Floating-Rate Note

Convertible Bond

Straight Fixed-rate with equity warrants

Zero coupon bond

Dual-Currency bond

INSTRUMENTS OF INTERNATIONAL BOND MARKET

Inflation Risk

Interest Rate Risk

Default Risk

Downgrade Risk

Liquidity Risk

Reinvestment Risk

Rip-off Risk

RISK OF INVESTING IN BOND

ADVANTAGES & DISADVANTAGES OF INTERNATIONAL BOND

Diversify your portfolio

International fund raising instrument

Fixed income market

Investment avenue(short term as well as long term)

Outperformed by Mutual Funds

Fees

Risk

Limited Selection

Treasury bonds Corporate bonds Municipal bonds Mortgage securities International and emerging-market bonds

Bonds in Citibank

U.S. Treasuries are considered among the safest investments because they are backed by the "full faith and credit" of the U.S. government. While the regular interest payments from Treasuries are considered quite secure, the value of these bonds can fall sharply when interest rates rise. The bonds also carry inflation risk. We could lose money in inflation-adjusted terms if, say, consumer-price increases outpace the interest rate on your bonds.

Comes in Three Versions : Treasury bills Treasury notes Treasury bonds

Treasury bonds

Treasury bills

which mature in 90 days to one year

Treasury notes which mature in two to ten years

Treasury bonds which have maturities of up to 30 years

Treasury bonds

Corporate securities can offer higher yields, but they are also among the riskiest bonds, because they are backed only by a company's promise to pay. Interest on corporate bonds is fully taxable.

Corporate bonds are generally categorized into two broad groups

1.Investment grade

2.High-yield

Corporate Bonds

Investment-grade bonds Investment-grade bonds have ratings of Baa and above from

Moody's Investors Service and BBB and above from Standard & Poor's.

High-yield bonds High-yield bonds are considered to have a greater risk of default

than their investment-grade counterparts. Indeed, they are often called "junk bonds."

Corporate Bonds

Municipal bonds, or "munis," generally have lower yields than other bonds. But they are still a popular investment, especially with high-income earners.

Munis pay interest that is potentially exempt from federal, state and local income taxes.

Munis are exempt from state taxes if you own securities issued from within your state of residence.

Local tax exemption applies if you hold securities issued from within your city of residence

That municipal-bond interest can be subject to the Alternative Minimum Tax

classified into two groups- General obligation Revenue bonds

Municipal Bonds

General obligation General obligation bonds are backed by the taxing authority of

the state or municipality

Revenue bonds Revenue bonds are issued by an agency, commission or authority

Municipal Bonds

Mortgage securities are backed by an underlying bundle of mortages

carry a number of risks homeowners generally refinance

when interest rates are low, investors will have to reinvest at those lower rates. This is known as prepayment risk

Investors also face other risks, notably the risk that some homeowners may default on their mortgage payments. This can translate into a loss of money for mortgage-bond holders.

Mortage Securities

International bonds, including emerging-market debt, are issued by non-U.S. governments and corporations

International bonds carry many of the same risks as U.S. bonds, including interest rate risk, inflation risk and default risk

Investors have to contend with another important risk: currency risk

International bonds can also be buffeted by political, economic and social turmoil in the issuing country

International and Emerging-market bonds

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