May 19th, 2015
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Types of instruments traded in the debt market

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Types of instrumentstraded in the debtmarketThe debtMarketsegmentsGovt. securitiesmarketPublic sector bondsCoupon bearing bondsZero coupon bondsTreasury billsFloating rate bondsGovt. guaranteed bondsDebenturesPSU bondsCommercial papersDeep discount bondsPrivate sector bondsDebenturesCommercial papersFloating rate bondsZero coupon bondsCertificate of depositsZero coupon bonds: Also known as zero interest bonds. They are sold ata discount from their face value. The difference between the face valueand the acquisition cost is the gain/return to the investor. For example: abond of the face value of Rs 1000 may be sold at discounted value of Rs300 and repayable at its face value of Rs 1000 after 6 years. Thus thedifference between the face value and discounted value is the interest forthat period.Deep discount bonds: these are also of the nature of zero coupon bonds.They are issued at a heavy discount and are repayable at face value. Atpresent these are issued by the public financial institutions like IDBI andSIDBI etc.For example in 1992, IDBI issued deep discount bond at Rs 2700 whichwas payable after 25 years at the face value of Rs 1,00,000.Treasury bills: A treasury bill is a promissory note issuedby the Government for a specified period, usually for theyear. The govt. promises to pay the amount, mentioned inthe treasury bill, to the bearer of the instrument on the duedate. Treasury bills are issued

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