Bond market

from Wikipedia, the free encyclopedia

The bond market (including bond market , bond market or the bond market called English market Bond ) is a market segment of the capital market , on the bonds and bonds , known as bonds are traded. The stock market is a complementary term .

Word origin and early usage

The composition Rentenmarkt contains the outdated word component from "Rentenpapier" as a defining word.

The word is first attested to in the German language in 1340 in the form of “pension”. It is usually derived from the old French noun “rente” (“yield”), which goes back to the verb rendre and comes from the Latin verb reddere (= to give back) via vulgar Latin rendere . Compare the origin of the term return .

The word pension was initially used in German for the - regularly payable - interest , so that an annuity paper represented an "interest paper". The word bond as a synonym for bond appeared for the first time on September 16, 1789 on a poster for borrowing from the duchies of Schleswig and Holstein. It is derived from the Old High German analёhan (around 800), which was used in German for a loan ( Latin mutuum ).

The word bond appeared for the first time in 1585 in a document book of the state of Dithmarschen ("Princely mandate regarding bonds and pawns and usurious contracts"), according to which a bond had to be recorded in the presence of scribes and witnesses. The Romance scholar Matthias Kramer translated the German word Schuldverschreibung in 1679 into Italian ( Italian prestito obbligazionario ), the linguist Kaspar von Stieler listed the term under the heading “prescribing” in 1691. In 1741, the linguist Johann Leonhard Frisch explained the bond by stating that the debtor was writing his goods to someone else, which the creditor could hold onto. The General Prussian Land Law raised the word debt security to a legal term in June 1794 .

General

The financial markets are divided into money and capital markets . The capital market, in turn, is made up of the equity and bond market segments. As with all markets, there are also trading objects and market participants on the bond market who evaluate market data to create market transparency as part of market analysis and observe future market developments . They show a certain market behavior that is expressed through supply and demand . Trends in the bond markets are evaluated with the help of trend analysis . The core of the bond markets are the stock exchanges .

The debtor ( issuer ) receives on the primary market ( English primary market ) from the creditors , in exchange for securitized bonds ( English bonds ), limited capital . This capital is from debtor vision debt . The securities issued to the secondary market ( English secondary market ) be resold. The trading volumes of bonds on the international bond market are significantly higher in nominal terms compared to the stock market . The reasons for this are that government bonds are traded on the bond markets and that companies have a debt ratio (which includes corporate bonds ) between 70% and 80%.

history

The bond market is as old as the debt security. This came up in the Middle Ages as "Rentenbrief" ( French brevet de rente ), when cities used it to finance their debts . The shops were, however, between individuals and not on markets settled. Since the early modern period, bonds have served two functions: in addition to long-term refinancing, they also raised capital with short repayment periods for governments and trade. Seasonal fluctuations in bond markets triggered by short-term demand are likely to result from underdevelopment of the money market .

The forerunners of today's government bonds were the medieval war bonds ( Italian "Prestiti" or "Prestanze" , "loan") in Venice or Florence . In Venice, the Doge Vitale Michiel II took out a 4% loan from his Venetian citizens in 1156 - the first early form of government bond on a bond market. In Florence, Philipp Tuskhan and 2 brothers have run the local pawnshop since 1287 ( Italian "casanam prestiti" ). These were compulsory interest-bearing bonds from the small and city-states of northern Italy, which were often not repaid. In the English domestic trade one used since the late 12th century, the owner - promissory note similar negotiable instruments ( Latin littera obligatoria , also known as Latin scripta obligatoria or French Escript obligatoire ). They are considered the forerunners of modern debt securities. Edward III von England needed money for the Hundred Years War with France in November 1338 , which the banker Bonifacio di Tommaso, among others , lent him to the Peruzzi , but never got it back.

In 1378, the city ​​of Ulm pledged its income from city gate tariffs of 1,800 guilders to a Jew from whom it had borrowed money. In addition to the pledging of income, assets were also loaned . In Austria, for example, the dukes Albrecht and Leopold pledged their Hainburg Castle to Johann von Lichtenstein in 1379, for which a Pfandbrief was issued in November 1388. Around 1400, in addition to the Pfandbrief, the bond had emerged in Germany, in which the amount owed and the interest and - in the event of default in payment - a right of immission ( right of lien ) were specified. A term or maturity was usually not provided, it was also perpetual annuities . The city of Cologne issued annuities that could be removed from the city in 1416.

On April 12, 1519, the Spanish King Charles V signed a bond issued for Anton Fugger . The Antwerp Stock Exchange began regular trading in bonds in 1532, including Dutch court letters (government bonds), private bonds of the Dutch state officials and magnates (for the account of the government), bonds of the Dutch provincial estates, city bonds, rentier letters and bonds of the English crown and the King of Portugal. The city of Antwerp had previously taken out a loan from Antwerp merchants on January 29, 1512. An imperial mandate in 1537 equated the bearer obligation with a change . In 1568 Philip II financed the Eighty Years' War of the Netherlands against Spain with a government loan of 3 million guilders. The Bank of England was founded in July 1694 by an English government loan by William III. at the rate of 8%. In 1751, the English "Consols bond" was the first government bond based on perpetual annuity. The state only committed itself to paying the interest (“pension”) and did not assume any repayment obligation, at most it granted itself a repayment right. The constant and ongoing interest payments have earned her the name "eternal annuity" on the bond market. This form was only allowed for government papers.

With the exception of Antwerp, the existing stock exchanges ( Amsterdam stock exchange founded in 1611, Königsberg 1613, Lübeck 1614, Frankfurt am Main 1615 or Leipzig 1635) traded exclusively in bills of exchange and sorts . It was not until around 1830 arrived in the Frankfurt Stock Exchange and bonds on the exchange list , namely Bavarian, Austrian, Dutch, Neapolitan and Spanish bonds. In 1854 Frankfurt-listed 81 railway bonds, 6 US Treasuries, 24 US states bonds 20 US city bonds and 5 of US bonds counties . The investments of the founding years brought the industry not only stocks around 1860 but also corporate bonds as a financial instrument , which were placed on stock exchanges. Aided by efforts to remedy the devastation of the Civil War (1861–1865) ( Reconstruction ), a national capital market, dominated by banking monopolies , developed in the USA from the 1870s. In addition to government bonds, it was mainly corporate bonds from railway companies that were traded here. 41% of the overseas bonds traded on the London Stock Exchange between 1865 and 1914 came from railways .

From 1927 onwards, there were upheavals on the bond markets of the Weimar Republic due to the structural weakness of the German economy and unsuccessful fiscal policy . The beginning of the global economic crisis in 1929 put a massive strain on the short-term bond markets in Germany and the USA. The interventionist capital market policy of the Nazi dictatorship in the German Reich from 1933 to 1945 led to German government bonds being traded in Swiss francs on the Swiss stock exchange during this period . After the annexation of Austria , the bonds of the then non-existent Alpine state were added. The pension indices showed the opposite trend and depicted the war in the opposite direction. German bonds lost 38.7 % of their market value in Swiss trade when war broke out (September 1, 1939) and 6.5% of their market value during the Russian Stalingrad offensive . The Yalta conference resulted in losses of 34%. Austrian securities lost massive amounts due to the dissolution of the state, but were able to break away from the trend towards German securities from 1943 onwards , because market participants expected Austria to be re-established after the defeat of the German Reich. So these bonds benefited from the military and political events.

The emerging after the Second World War economic boom also boosted the German bond market, because in 1960 listed German stock markets over 260 different industrial bonds. The worldwide increasing national debt led to the dominance of government bonds on the international bond markets from 1980 onwards, so that the rating agencies decided in 1982 to assess the increasing country risks with a national rating. In June 1991 the German bond index REX was created, which summarizes the market development of the bond market in one index figure - the basis of which is the current yield - for federal bonds. The national debt first reached excessive levels from March 1997 in Asia ( Asian crisis ), then from May 1998 during the Russian crisis and finally from April 2010 in Europe. It thereby increased the financial risks on the bond markets and conjured up the risk of financial crises . The Frankfurt Stock Exchange introduced the “ Entry Standard ” in April 2011 and the “ Prime Standard ” for bonds in October 2012 .

Bond types

The traded on the bond market bonds (by type of issuer ) government bonds , municipal bonds , municipal bonds , mortgage bonds , corporate bonds , bonds of public sector banks and (temporarily) convertible bonds and bonds with warrants . Depending on the currency, a distinction is made between bonds in domestic currency (in the euro zone, euro bonds) and in foreign currency . A large part of the bonds is traded on the bond market over-the-counter between the issuers and the large institutional investors.

Market participants and market data

As market participants, there are issuers , investors ( institutional investors or private investors ), credit institutions as well as stock market traders and brokers on the bond market . The trading motive of these market participants can be investments , services (banks with security orders from their customers ), arbitrage or speculation . Market transparency is created primarily through stock exchange prices and publications by issuers. The market mechanisms cause price formation through supply and demand , which comes about through the market participants. In addition to the stock exchange price, typical market data are the issue yield and the current yield . Both returns are considered a kind of market interest rate , which is often used as a reference interest rate .

Market structure

The structure of the bond markets is highly segmented. This is due to different state regulations for (inter) national, regional and municipal markets and the exact definition of the bond conditions for each new issue of these securities . The fact that most papers are traded over the counter creates additional intransparency . Using infinite-dimensional stochastic models, the scientific literature tries to analyze the structure of interest rates. Corporate bond trading reacts to relevant market information just like the stock markets. There is a short-term correlation between the markets in terms of liquidity and volatility .

The most important international bond markets are those for government bonds from Germany , Japan , Great Britain and the United States . The global bond market grew strongly in the 1980s and 1990s with the expansion of the corporate bond segment, totaling $ 31 trillion in 2005. That corresponded to 98% of the world's gross domestic product . The papers of the main markets are to be distinguished from papers of - measured by the economic output - very small industrialized countries, emerging countries and developing countries . These states often borrow in foreign currencies and sometimes have to offer significantly higher interest rates in order to be able to cover their financial needs.

The ASEAN countries, for example, have very different market structures. While Singapore has a globalized bond market, most of the other members have heavily deficient structures. Brunei does not have its own trading center and is completely dependent on the markets of other countries. The bond markets in developing countries also react to political events such as presidential elections. After the election of Luiz Inácio Lula da Silva in 2002, Brazil suffered interest rate premiums because traders expected the economic environment to deteriorate.

Economic importance

Werner Sombart pointed out as early as 1902 that annuities were an important financing instrument for medieval cities. Actually cover bond markets - at least partially - the capital requirement on debt of the state and the company , as investors buy the bonds as a creditor. In addition, bond markets ensure the dissemination of company data and the ratings for company valuation . The bond market takes on an allocation of resources in that the return emits signals about the creditor risk and ideally reflects all available information . The bond market enables economic growth because the state and corporate financing is partly taken over by investors and this capacity expansion is co-financed through start-up or expansion investments. The equity and bond markets play complementary roles in financing growth.

In terms of the volume of bonds in circulation, the German bond market is the third largest in the world. The US market is in first place ahead of Germany and Japan in second place. In the second quarter of 2016, the global bond markets - measured in the respective foreign currency - reached a market volume of 720.8 billion ( US dollars ), followed by 367 billion ( euros ), 46.7 billion ( British pounds ), 19.1 billion Billion ( Australian dollars ) and 7.9 billion ( yen ). The market volume ( nominal values ) on the German bond market amounted to 3.1 trillion euros in 2014, while the stock market had a volume of 1.5 trillion euros. This makes the bond market twice as big as the stock market.

Web links

Wiktionary: Rentenmarkt  - explanations of meanings, word origins, synonyms, translations

Individual evidence

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