Presenters

AHMAD BILAL QAZI (11-005)

WAQAR KHALIQ (11-011)

SHAKEEL AHMAD (11-026)

 TOPIC:

DEBT MARKETS IN
PAKISTAN
 The bond market, also known as the debt, credit, or
fixed income market,

A financial market where participants buy and sell

debt securities usually in the form of bonds.

The size of the international bond market is an

estimated $45 trillion.

U.S. bond market debt is $25.2 trillion.

 Background
Bond markets play an important role in
mobilization of capital.

The investments are very necessary for economic

development of a country.

A good market will help promote economic growth

and reduce the risk of financial crises.

Bond market of Pakistan is 5% of GDP at the

moment which is very small as compared to
other economies.
 Function of Financial Markets

Channels funds from person or

business without investment
opportunities (i.e., Lender-Savers)
to one who has them (i.e.,
Borrower-Spenders)
Improves economic efficiency
Significance of Bond Market for
Pakistan
Increasing the competitiveness and efficiency of the
financial system, which here is dominated by large banks.
Enhancing the stability of the financial system by creating
alternatives to banks, that will reduce the power of banks
simply.
It provides a resort for domestic funding and budget
deficits other than by central bank.
The development of bond market can force the financial
intermediaries to develop other products like Repo,
Structured finance and Derivatives.
 CONTINUE. . . .
Cost of debt servicing can be reduced through
funding of Government Budget deficits on
market-oriented funds.
Effective allocation of capital competition in
financial sector
Supports infrastructure development,
privatization, securitization, and the rise of new
institutional investors requiring long term assets
to match long term liabilities
Reduces the currency, interest rate and funding
exposures risks
 Bond market in Pakistan

Liberalization of the financial system and the

switch from credit planning to a market based
monetary policy has crated a secondary market
for government bonds in Pakistan.
Trading in treasury bills and in short-term
federal bonds provides the basis for open market
operations of the state bank.
In 1991, the government with the consultation of
World Bank, started issuance of two types of
securitiesone of short-term maturity and the
other of long-term maturity on the basis of
auction through the intermediation of primary
dealers, i.e. treasury Bills (short-term) and
 BOND

Is a debt security in which authorized issuer

owes the holders a debt.
Depending on the terms of the bond.
Issuer obliged to pay interest and to use/or to
repay the principal at a later date.
A bond is a formal contact to repay borrowed
money with interest at fixed intervals
 Types of bonds

Corporate Bond

A corporate bond is a bond issue by a corporation.

It is a bond that a corporation issues to raise
money effectively in order to expand its business.
The term is usually applied to longer-term debt
instruments, generally with a maturity date falling
at least a year after their issue date. (The term
"commercial paper" is sometimes used for
instruments with a shorter maturity.)
 Government Bond

A government bond is a bond issued by a

national government, generally promising to pay
a certain amount (the face value) on a certain
date, as well as periodic interest payments.

Government bonds are usually denominated in

the country's own currency.
Bonds issued by national governments in foreign
currencies are normally referred to as sovereign
bonds, although the term "sovereign bond" may
also refer to bonds issued in a country's own
currency.
 Municipal Bond
A municipal bond is a bond issued by an American city or
other local government, or their agencies.
Potential issuers of municipal bonds includes cities, counties,
redevelopment agencies, special-purpose districts, school
districts, public utility districts, publicly owned airports and
seaports, and any other governmental entity (or group of
governments) below the state level.
Municipal bonds may be general obligations of the issuer or
secured by specified revenues.
In the United States, interest income received by holders of
municipal bonds is often exempt from the federal income
tax and from the income tax of the state in which they are
issued,
although municipal bonds issued for certain purposes may
not be tax exempt.
 Secured bonds have specific assets
of the issuer pledged as collateral for
the bonds. A bond can be secured by
real estate or other assets.
Unsecured bonds are issued against
the general credit of the borrower; they
are also
called debenture bonds.
Bonds that mature at a single specified
future date are called term bonds.
Bonds that mature in installments are
called serial bonds.
 Registered bonds are issued in the name of the
owner and have interest payments made by
cheque to bondholders of record.
Bearer or coupon bonds are not registered;
thus bondholders must send in coupons to
receive interest payments.
Convertible bonds permit bondholders to
convert the bonds into common shares at their
option.
Redeemable (callable) bonds are subject to
call and retirement at a stated dollar amount
prior to maturity at the option of the issuer.
Retractable bonds are subject to redemption
prior to maturity at the option of the holder.
 Zero-Coupon Bonds
Do not pay interest
Sold at deep discount from par value
Value increases over time
Subject to tremendous price volatility as interest
rates fluctuate
Interest must be reported as it is accrued for tax
purposes, even though no interest is actually
received.
Treasury strips are zero-coupon bonds created
from U.S. Treasury securities
 Junk Bonds
Highly speculative, usually
subordinated debentures
Have low, sub-investment grade ratings
Typically offer very high yields
Prices tend to behave more like stocks
than bonds