WHAT IS DEBT MARKET ?

The debt market is any market where trading debt instruments takes place. Examples of debt instruments includes mortgages, promissory notes, bonds, Certificates of deposits, etc. A debt market establishes a structured environment where these types of debt instruments are traded with ease between interested parties.
In the event that the debt market deals primarily in bond issues, it is known as bond market and if mortgages and loans are the main focus of the trading in the debt market , it is known as credit market. And if the instruments are issued with a fixed coupon or interest rate , the market for such issued instruments can be termed as fixed income market.

Following are some of the debt instruments:

1. Government Securities: Government securities are issued by the National Bank on behalf of the Goverment. These securities are issued for a period ranging between 1 to 30 years. For shorter term, Treasury Bills are issued.

2. Corporate Bonds: These bonds are issued by the Public and Private sector companies usually for a term not more than 15 years. Normally, the rate of return is higher for corporaye bonds as compared to government securities as they carry higher risk. This risk is determined by various determinants like the nature of business of the entity, the industry in which it operates, competition, brand image, etc.

3. Certificate of Deposit: Certificate of Deposits (CDs) usually offer higher returns than bank deposits and are issued in demat form. Banks issue CDs with maturity term of 7 days to 1 year while other financial institutions issue them with a maturity term between 1 year to 3 years.

4. Commercial Papers: These are short term instruments with maturity up to one year.

5. Structured Debt: It is an instrument created by the lender with the needs and circumstances of the borrower in mind. Usually the package includes incentives for the borrower so as to attract them for doing business with the lender. The lender, too, enjoys benefits of the transaction inthe long term. The main goal of structured debt is to create a situation that provides the borrower with incentives while keeping the debt load low.