FTGuide to Bond and Money Markets

489 Pages·2015·13.05 MB·English

by  Glen Arnold

FT

ABOUT THE AUTHOR FT Guides
Do you want to develop a good working knowledge of
key fi nancial terms? Guides
Glen Arnold, PhD has held positions of
FINANCIAL TIMES Guides BOND AND
Professor of Investment and Professor Looking to invest your savings?
of Corporate Finance, but came to the B
MONEY
conclusion that academic life is not nearly as Keen to learn more about money market instruments?
O
much fun as making money in the fi nancial
BOND AND MARKETS
markets. As a wealthy investor in his early
Curious about fi nancial markets in the modern N
50s, Glen now spends most of his time
economy? D
running his own equity portfolio (see www.
glen-arnold-investments.co.uk) and a property MONEY The Financial Times Guide to Bond and Money
Then this is the book for you. A Markets is a practical and easy-to-follow
development company from his offi ce in the
introduction to the global wholesale fi nancial
heart of rural Leicestershire. N
markets. Bestselling author Glen Arnold shows
MARKETS
Glen is the author of the investing classics D you how bond and money markets work, where
The Great Investors, The Financial Times they are located, and explains their impact on

Guide to Value Investing, The Financial Times M everyday life.
The Financial Times Guide to Bond and Money Markets is your
Guide to Investing and Get Started in Shares.
He wrote the market-leading university defi nitive introduction to the fi nancial marketplace. This book O GLEN ARNOLD The Financial Times Guide to Bond and Money
textbooks Corporate Financial Management, provides an authoritative and comprehensive guide to the workings Markets includes:
N
Modern Financial Markets and Institutions and of the modern fi nancial system. It will help you understand key
(cid:127) An overview of bond and money markets
Essentials of Corporate Financial Management. bond and money market terms and will demystify the different E
(cid:127) Government, international and corporate
types of markets, explaining the role of money market instruments
He is also the author of three defi nitive books Y bonds ptg16462057
and revealing how fl uctuations in the marketplace can affect your
on fi nance written for the professional market: (cid:127) Interbank and Eurocurrency markets
own money strategies. M
The Financial Times Handbook of Corporate
(cid:127) Treasury bills and commercial paper
Finance, The Financial Times Guide to the
The Financial Times Guide to Bond and Money Markets: A (cid:127) Repurchase agreements and certifi cates
Financial Markets and The Financial Times
of deposits
Guide to Banking. All of these books are (cid:127) Provides an easy-to-follow guide to bond and money markets R
available from Financial Times Publishing. (cid:127) Bills of exchange and banker’s acceptances
(cid:127) Helps you understand the various markets and their functions K
(cid:127) Financial concepts and mathematics
(cid:127) Explains in-depth fi nance theory and mathematical structures E
(cid:127) Bond and money market securities valuation
(cid:127) Features comprehensive graphs and real case studies from the T (cid:127) Central banking infl uences on interest rates
Financial Times S
A
R
N
O
L
D
FINANCE
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From the Library of Michael Truesdale
CVR_ARNO1799_01_SE_CVR.indd 1 06/07/2015 08:30
THE FINANCIAL TIMES
GUIDE TO BOND AND
MONEY MARKETS
ptg16462057
From the Library of Michael Truesdale
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ptg16462057
From the Library of Michael Truesdale
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THE FINANCIAL TIMES
GUIDE TO BOND AND
MONEY MARKETS
GLEN ARNOLD ptg16462057
From the Library of Michael Truesdale
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PEARSON EDUCATION LIMITED
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First edition published 2015 (print and electronic)
© Opus Eris Limited 2015 (print and electronic)
The print publication is protected by copyright. Prior to any prohibited reproduction,
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The ePublication is protected by copyright and must not be copied, reproduced, transferred,
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permitted in writing by the publisher, as allowed under the terms and conditions under
which it was purchased, or as strictly permitted by applicable copyright law. Any
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All trademarks used herein are the property of their respective owners. The use of any
trademark in this text does not vest in the author or publisher any trademark ownership
rights in such trademarks, nor does the use of such trademarks imply any affi liation with
or endorsement of this book by such owners. ptg16462057
Contains public sector information licensed under the Open Government Licence (OGL)
v3.0. http://www.nationalarchives.gov.uk/doc/open-government-licence/version/3/
Pearson Education is not responsible for the content of third-party internet sites.
ISBN: 978-0-273-79179-9 (print)
978-0-273-79180-5 (PDF)
978-1-292-00542-3 (eText)
978-0-273-79181-2 (ePub)
British Library Cataloguing-in-Publication Data
A catalogue record for the print edition is available from the British Library
Library of Congress Cataloging-in-Publication Data
Arnold, Glen.
The Financial Times guide to bond and money markets / Glen Arnold
pages cm
Includes index.
ISBN 978-0-273-79179-9 (print) -- ISBN 978-0-273-79180-5 (PDF) --
ISBN 978-1-292-00542-3 (eText) -- ISBN 978-0-273-79181-2 (ePub)
1. Bonds--Handbooks, manuals, etc. 2. Money market--Handbooks, manuals, etc.
3. Investments--Handbooks, manuals, etc. I. Title.
HG4651.A76 2015
332.63′23--dc23
2015020242
10 9 8 7 6 5 4 3 2 1
19 18 17 16 15
Front cover image © Kord.com /Getty Images
Print edition typeset in 9.5/14pt Stone Serif ITC Pro by 35
Print edition printed by Ashford Colour Press Ltd, Gosport
NOTE THAT ANY PAGE CROSS REFERENCES REFER TO THE PRINT EDITION
From the Library of Michael Truesdale
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CONTENTS
About the author vii
Preface viii
Acknowledgements x
PART 1
AN OVERVIEW
1
1 Introduction to bond and money markets 3
PART 2
BOND MARKETS
27
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2 Government bonds 2 9
3 Government bonds around the world 61
4 Corporate bonds 1 03
5 Credit ratings for bonds 147
6 High-yield and hybrid bonds 1 75
7 International bonds 205
PART 3
MONEY MARKETS
2 37
8 Interbank and Eurocurrency 239
9 Treasury bills and commercial paper 2 63
10 Repurchase agreements and certificates of deposit 2 79
11 Bills of exchange and banker’s acceptances 297
From the Library of Michael Truesdale
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vi CONTENTS
PART 4
VALUING BONDS AND MONEY MARKET
INSTRUMENTS
309
12 Financial concepts and mathematics 311
13 Bond valuation 333
14 Money market securities valuation 3 63
PART 5
SOME VARIATIONS ON A BOND THEME
381
15 Securitisation 383
16 Central banking influence on interest rates 4 19
Index 460
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From the Library of Michael Truesdale
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ABOUT THE AUTHOR
Glen Arnold, PhD, has held positions of Professor of Investment and Professor
of Corporate Finance, but came to the conclusion that academic life was not
nearly as much fun as making money in the fi nancial markets. As a wealthy
investor in his early 50s, Glen now spends most of his time running his own
portfolio (w ww.glen-arnold-investments.co.uk) and a property development
company from his offi ce in the heart of rural Leicestershire. He is happy to
share his ideas with fellow enthusiasts and so writes a regular Deep Value Shares
newsletter on the investment website ADVFN.
G len is the author of the number one best-selling investment book T he
Financial Times Guide to Investing as well as the investing classics The Financial
Times Guide to Value Investing , The Great Investors and Get Started in Shares . He
wrote the market-leading university textbooks Corporate Financial Management,
Modern Financial Markets and Institutions and E ssentials of Corporate Financial ptg16462057
Management . He is also the author of three defi nitive books on fi nance: The
Financial Times Guide to Banking , The Financial Times Handbook of Corporate
Finance and T he Financial Times Guide to the Financial Markets . All these books
are available from Pearson Education.
From the Library of Michael Truesdale
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PREFACE
Everybody’s life is touched by fi nancial markets. This was painfully brought
home to us when markets built on badly thought-through fi nance collapsed,
triggering the long recession in 2008. Millions were thrown out of work, wages
were cut, governments went bust and interest rates were slashed. Clearly we all
need to have some acquaintance with what these fi nancial instruments are
and how these markets work.
This book is a simple, easy-to-follow guide to bond and money markets, which
assumes no prior knowledge of fi nance. The emphasis is on gaining an under-
standing of the underlying concepts in the fi rst half of the book, the impor-
tance of these markets and ideas in the practical world of fi nance. Later I
introduce those elements of quantitative fi nance that are absolutely essential.
This way, I hope, the essence of this technical subject is explained without
bamboozling the reader with an overload of mathematics. ptg16462057
It explains:
● the jargon used in the debt markets
● the wide variety of bond markets, from sovereign bonds to junk
● t he vital role of money market instruments, ranging from commercial paper
to interbank lending
● t he valuation of these securities and how value changes as interest rates
change.
Who might find the book useful?
● M arket professionals needing a succinct, down-to-earth guide to throw light
into an area of knowledge that they know they need to fulfi l their roles eff ec-
tively and advance their careers.
● People working at banks, insurance companies, lawyers’ offi ces and account-
ing fi rms needing to develop a good working knowledge of key fi nancial
terms and functioning of the main markets.
From the Library of Michael Truesdale
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PREFACE ix
● U niversity students needing more depth on bond and money markets than
is provided by their main course texts.
● T hose curious minds who realise they need to understand the fi nancial mar-
kets to comprehend the modern economy.
● P rivate investors who might consider putting some of their savings in these
markets.
I hope you enjoy the book.
Glen Arnold
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From the Library of Michael Truesdale
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