The Financial Times Guide to Bond and Money Markets- Financial Times Guides

Synopsis

This jargon-busting book describes how the bond and money markets work and how they impact on everyday life. It assumes no specialised prior knowledge of finance theory and provides an authoritative and comprehensive run-down of the workings of the modern financial system.

 

 

 

It's in the money markets where money, or the value of money, can be bought and sold. It's the place where Treasury bills, deposits, repurchase agreements, short-lived mortgages etc, can be traded. These are crucial to the global economy because they provide liquidity funding for the global financial system.

 

 

Bond markets operate in the same way but are financial markets where participants can issue new debt or buy and sell existing debt - known as bonds. As with money markets, bond markets are key because they provide money where no money previously existed (think of your mortgage).

 

 

Using real world examples from media such as the Financial Times, bestselling author Glen Arnold gives an international perspective on these markets.

• Understand key bond and money market terms and banking products
• Explore the wide variety of types of markets and their functions eg. LIBOR, gilts, government debt
• Gain insight into the main factors influencing prices in the financial markets
• Learn how fluctuations in the money markets can affect you and your own money strategies

Summary

Chapter 1: Understanding Bonds

* Summary: Introduces bonds as fixed-income securities that represent a loan from investors to borrowers. Covers different types of bonds (e.g., government, corporate, convertible), bond terminology, and key bond features (e.g., principal, coupon payment, maturity).
* Example: A company issues a $1,000 bond with a 5% coupon rate and a 10-year maturity. Investors who buy the bond will receive $50 annually for 10 years and will receive the principal amount of $1,000 back at maturity.

Chapter 2: Bond Markets and Trading

* Summary: Explores the bond markets, including the primary and secondary markets, and the different types of market participants. Discusses bond trading, including settlement and clearing processes, and the factors that influence bond prices.
* Example: A large investment bank acts as an underwriter for a new corporate bond issue. It sells the bonds to institutional investors in the primary market at a price of $990. Bonds that are sold in the secondary market trade at market prices that fluctuate based on supply and demand.

Chapter 3: Money Markets

* Summary: Introduces the money markets, which are markets for short-term debt instruments. Covers different types of money market instruments (e.g., commercial paper, certificates of deposit), and the key factors that influence their pricing.
* Example: A company needs to borrow money for 30 days to cover a cash flow gap. It issues a commercial paper (CP) note, which is a short-term debt instrument that matures in 30 days. Investors buy the CP at a discounted price, and the company repays the principal amount at maturity.

Chapter 4: Fixed Income Strategies

* Summary: Discusses various fixed income strategies, including active and passive management, yield curve analysis, and credit analysis. Explores different types of bond funds, such as bond index funds, actively managed bond funds, and target-date funds.
* Example: An investor who believes that interest rates are likely to rise may invest in a short-term bond fund. This fund holds bonds with shorter maturities, which are less sensitive to interest rate increases than longer-term bonds.

Chapter 5: Structured Products

* Summary: Introduces structured products, which are complex financial instruments that combine different types of underlying assets (e.g., bonds, derivatives, commodities). Covers the various types of structured products, such as collateralized debt obligations (CDOs) and asset-backed securities (ABS).
* Example: A bank packages a pool of home mortgages into a CDO. The CDO is then sold to investors, who receive interest payments based on the performance of the underlying mortgages.

Chapter 6: Bond and Money Market Regulation

* Summary: Explores the regulations that govern bond and money markets. Covers the role of regulatory agencies, the requirements for bond issuers, and the protections for investors. Discusses the impact of regulations on market behavior.
* Example: The U.S. Securities and Exchange Commission (SEC) requires public companies to disclose extensive information about their bond issues. This information helps investors make informed investment decisions and reduces the risk of fraud.