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Content page 1 . Valuation of Bonds Key Concerns and Solutions. Nitin Jaiswal Bloomberg L.P. Content page 1 . Agenda for the Presentation. Importance of Valuation for a Bond Market Key Issues relating to Bond Valuations in Asia Government Bonds Corporate Bonds

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Content page 1

Contentpage 1

  • Valuation of Bonds

  • Key Concerns and Solutions

Nitin Jaiswal

Bloomberg L.P


Content page 11

Contentpage 1

Agenda for the Presentation

  • Importance of Valuation for a Bond Market

  • Key Issues relating to Bond Valuations in Asia

    • Government Bonds

    • Corporate Bonds

  • Making a robust Valuation model for Asian Bond Markets – ideas and suggestions.


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Importance of Valuation for a Bond Market

  • Transparency

    • IAS 39 Guideline

    • Basil II Guideline

    • Stringent disclosure requirement post Enron and WorldComm Scandal

  • Risk Management

    • Key concern for any bank

    • Avoiding financial scandals

  • Brings Liquidity in the Market

    • Transparent market will attract investment

    • Example: Bond Funds, investment in Financial Industry

  • A good valuation model is the necessity of every financial markets.


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Valuation of Government Bonds

  • Key Requirements:

  • To have a well accepted model to calculate fair values for the illiquid bonds.

  • To have a well accepted par coupon and zero coupon curve.

  • To have a well accepted underlying risk free government curve.

  • Easy availability of the information.


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Valuation of Corporate Bonds

  • Key Issues:

  • Nature of Corporate Bonds

    • Large number of issues

    • Complicated structures

    • Illiquidity premium

    • No clear cut guideline on corp. bond valuations

  • Information Disclosure

    • Bond Structure

    • Ratings information

    • Yield calculators

    • Price availability for all the bonds

    • Issues related to private placement


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    Nature of Corporate Bonds

    • Large number of corp. bonds : 19668 (ex Japan and Australia)

    • Complicated Structures:

      • Normal Fixed

      • Normal Floating

      • Normal Zero Coupon

      • Callable Fixed

      • Callable Floating

      • Callable Zero Coupon

      • Callable Step-up

      • Callable Defaulted

      • Sinkable Fixed

      • Sinkable Floating

      • Extendable Fixed

      • Call Extendable Fixed

      • Convertible fixed

      • Convertible call Fixed / Floating


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    Liquidity in Corp. Bonds

    • Average number of corporate bonds traded in last 7 days:

      • Malaysia 21

      • India 12

      • Thailand 8

      • Korea 24

  • No clear cut guideline for corp. bond valuations


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    Information Disclosure

    • Most of the corporate bonds are private placement:

      • Lack of easy availability of information and this leads to illiquidity in the long run.

      • Availability of bond structure

  • Ratings information

    • Treatment of unrated papers

    • Lack of clarity on issuer v/s program rating.

    • Availability of rating information

  • Methodology of Yield calculators

    • Each lead manager structure the issues in his / her own way.

    • No public available of Calculation information and convention.

  • Price availability for all the bonds

  • Growth of structured bonds


  • Content page 18

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    Your Thoughts and Ideas

    • Better Bond Valuation Models.


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