Bonds — A Closer Look

This is a follow-up to my last piece on introduction to Bonds, which are financial instruments for investing and trading in debt markets.

Types of Bonds:

• Bonds are divided into Government Bonds and Corporate Bonds.
• Government Bonds include Treasury Bonds (Bills, Notes, and Bonds) and Municipal Bonds.
• Corporate Bonds are further divided into Investment Grade and High-Yield (Junk) Bonds.
• Both Investment Grade and High-Yield Bonds can have Convertible sub-types, which are bonds that can be converted into a predetermined number of shares of the issuing company’s stock.

Table made in Google Docs by Yours Truly

Indian bond markets offer various tax-free bonds issued by government entities and public sector undertakings. These bonds are popular among investors seeking tax-efficient investment options.

Fun Facts:

• India has the second-largest bond market in the world after the United States, with outstanding bonds worth over $2 trillion as of 2022.
• The Indian bond market is dominated by government bonds, which account for around 80% of the total outstanding bonds. Government securities are highly liquid and widely traded.
• The Negotiated Dealing System-Order Matching (NDS-OM) platform, introduced in 2005, is an anonymous order-matching system for trading in government securities and forex instruments. It has significantly improved transparency and efficiency in the Indian bond markets.
• India has seen the issuance of “Masala bonds,” which are rupee-denominated bonds issued by Indian entities in overseas markets. This allows Indian companies to raise funds from international investors while mitigating currency risk.
• In line with global trends, India has witnessed the issuance of green bonds by various entities, including the government, public sector undertakings, and private companies, to finance environmentally friendly projects.

The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) are the primary regulatory bodies overseeing the Indian bond markets, ensuring market integrity and investor protection.