Ex. 16. Scan the available financial papers and summarize the attitude of foreign investors towards Russian bonds placed abroad.

READING PRACTICE

Ex. 17. a) Look through the text below to say what types of securities are described in it.

b) Reread the text more carefully and explain how the US government uses debt instruments.

US Government Securities

 

The US government relies heavily on debt financing. Since the 1960s, revenues have seldom covered expenses, and the differences have been financed primarily by issuing debt instruments. Moreover, new debt must be issued in order to get the necessary funds to pay off old debt that comes due.

About two-thirds of the public debt is marketable, meaning that it is represented by securities that can be sold at any time by the original purchaser through government security dealers.

Marketable issues include Treasury bills, notes, and bonds.

US Treasury Bonds have maturities greater than ten years at the time.of issuance, with denominations ranging from $1,000 upward. Some Treasury bond issues have call provisions under which the Treasury has the right to force the investor to sell the bonds back to the government at par value.

US Savings Bonds are nonmarketable securities, offered only to individuals and selected organizations. There is a limit to the amount that may be purchased by any person in a single year. Two types are available: pure discount bonds and bonds that pay interest semiannually but can be redeemed for par value at any time.

To support credit for home purchase, the government has authorized the issuance of participation certificates. The most important certificates of this type are those issued by the Government National Mortgage Association (GNMA or "Ginnie Mae"), they are known as GNMA Modified Pass-Through Securities. Unlike most bonds, GNMA pass-through securities pay investors on a monthly basis an amount of money that represents both a pro rata return of principal and interest on the underlying mortgages.

US Corporate bonds. Corporate bonds are similar to other kinds of fixed-income securities. An issue of bonds is generally covered by an indenture, in which the issuing corporation promises a specified trustee that it will comply with a number of stated provisions, like the timely payment of required coupons and principal on the issue. The major types are as follows:

Mortgage bonds are debt that is secured by the pledge of specific property. In the event of default, the bondholders are entitled to obtain the property in question.

Collateral trust bonds are debt-backed by other securities that are usually held by the trustee.

Debentures are general obligations of the issuing corporation representing unsecured debt. A bond indenture will often require the issuing corporation to make annual payments into a sinking fund.

Words you may need:

treasury bond долгосрочные казначейские обязательства (облигации)

call provision условие займа, предусматривающее право эмитента досрочно выкупить ценные бумаги

par value паритет, номинал

participation certificate сертификат участия

Government National Mortgage Association (GNMA) Правительственная национальная ипотечная ассоциация

pass-through security ценная бумага, выпущенная на базе пула ипотек

pro rata adj, adv пропорциональный, пропорционально

fixed-income security ценная бумага с фиксированным доходом

indenture n письменное соглашение об эмиссии облигаций

trustee n доверенное лицо, опекун

mortgage bond облигация, обеспеченная закладной под недвижимость

pledge n залог

collateral trust bond облигация, обеспеченная другими ценными бумагами, хранящимися на условиях траста

unsecured debt необеспеченный долг

sinking fund выкупной фонд, фонд погашения задолженности

Ух. 18. a) Read the text below quickly to find the developments in the US bond market that occurred in the early 90s.

b) Reread the text more carefully to describe the changes in the Yankee offerings and the interests of US investors.

Borrowers Pile Up the Yankees

 

During the past six years, according to the Federal Reserve, foreign non-financial borrowers placed $170 billion of public and private bonds in the US – nearly four times the volume issued during all of the 1980s and taking the total amount outstanding to $264 billion last September.

Until recently, only the most creditworthy foreign names were able to tap the US bond market, the largest pool of capital in the world. Yankee offerings were mainly limited to Canadian provinces, supranationals such as the World Bank and triple-A-rated governments and corporations. But as long-term US rates have fallen, and some barriers to entry were removed, many more borrowers have entered the market. By some estimates, single-A and lesser credits accounted for 60% of last year's issues (of which 80% were for 10 years or longer).

The introduction of Rule 144a in April 1990 really opened the door, allowing issuers to offer bonds to large US institutional investors without registering the offering with the Securities and Exchange Commission (SEC). This exemption greatly reduces the time, expense and disclosure required, while extending the benefits of underwriting and secondary-market trading to these placements.

The adoption of Rule 144a also helped increase awareness among foreign issuers of the US bond market's unique attractions. "Many can tap 20-, 30- and even 100-year maturities at costs not achievable anywhere else in the world".

On the demand side, US investors are becoming increasingly receptive to foreign names. In a recent survey of the 400 most active US institutional investors, JP Morgan found that foreign bonds now account for between 9% and 10% of the average portfolio, compared with 4% to 5% just three years ago. One reason for this interest is a relative decline in the volume of domestic bond issues, especially by US industrials. In these circumstances investors are looking for new ways to diversify their credit exposure and they have looked overseas.

But the most powerful force behind increased demand has been an attempt by US fund managers to boost returns in hopes of outperforming the benchmark indices.

Why Yankees? Since they don't come to the market often, their yield spreads may not be priced efficiently; it is not uncommon to see a 50 bp difference in spreads between apparently similar issues. Sophisticated managers are looking for "inefficiencies which the market will eventually recognize", resulting in higher bond prices.

Not surprisingly, these investors are focusing on Asia, expect more Yankee issues from Indonesia, India, Thailand and the Middle East.

Words you may need:

pile up v накапливать

creditworthy adj кредитоспособный, платежеспособный

to tap the market выпускать ценные бумаги на рынок, использовать ресурсы финансового рынка

triple-A-rated имеющий рейтинг ААА (высший кредитный рейтинг по системе Стэндард Энд Пур)

single-A credit кредит, имеющий рейтинг А (низкий рейтинг)

Rule 144а правило 144а (правило Нью-йоркской фондовой биржи)

disclosure n представление компанией информации о своей деятельности

awareness n (зд.) осведомленность

receptive adj восприимчивый

exposure n риск потенциальных убытков

benchmark index отправной индекс, базовый индекс

spread n спред

bp (basis points) базовые пункты

Ex. 19. Study the financial section from a newspaper, which includes information about the bond prices of different companies, and explain how to read bond quotations:

 

UNIT 9.FINANCIAL MARKETS. THE STOCK MARKET

A. TEXT

STOCKS AND MARKETS

 

Stock Markets are the means through which securities are bought and sold. The origin of stock markets goes back to medieval Italy.¹ During the 17th and 18th centuries Amsterdam was the principal centre for securities trading hi the world. The appearance of formal stock markets and professional intermediation resulted from the supply of, demand for and turnover in transferable securities. The 19th century saw² a great expansion in issues of transferable securities.

The popularity of transferable instruments as a means of finance continued to grow and at the beginning of the 20th century there was an increasing demand for the facilities provided by stock exchanges, with both new ones appearing around the world and old ones becoming larger, more organized and increasingly sophisticated.

The largest, most active and best organized markets were established in Western Europe and the United States. Despite their common European origins there was no single model which every country copied.

Members of stock exchanges drew up rules to protect their own interests and to facilitate the business to be done by creating an orderly and regulated marketplace.

Investors were interested in a far wider range of securities³ than those issued by local enterprises. Increasingly, these local exchanges were integrated into national markets.

The rapid development of communications allowed stock exchanges to attract orders more easily from all over the country and later the barriers that had preserved the independence and isolation of national exchanges were progressively removed, leading to the creation of a world market for securities. The 1980s saw the growing internationalization of the world securities markets, forcing stock exchanges to compete with each other. Cross-border trading of international equities expanded.

Although many securities were of interest to only a small and localized group, others came to attract investors throughout the world. Increasingly, arbitrage between different stock exchanges ensured that the same security commanded the same price⁴ on whatever market it was traded. London, Paris, New York became dominant stock exchanges.

Stock exchanges emerged as central elements in the financial systems of all advanced countries.

Potential investors, insurance companies, pension funds, governments and corporate enterprises see securities as a cheap and convenient means of finance.

An investor who purchases new securities is participating in a primary financial market. An investor who resells existing securities is participating in a secondary financial market.

There are two basic types of stock markets – (1) organized exchanges, like the New York Stock Exchange (NYSE) or the London Stock Exchange (LSE), and (2) the less formal over-the-counter markets.

The organized security exchanges are tangible physical entities, which have specifically designated members⁵ and elected governing bodies – boards of governors.

In contrast to the organized security exchanges, the over-the-counter market is an intangible organization. It is a network of security dealers who buy and sell securities from each other, either for their own account or for their retail clients. The over-the-counter market is normally conducted by telephone and computer reporting of price quotations between brokerage firms that "make a market": that is, agree to buy and sell a particular security. Securities that are not listed on exchanges are traded "over-the-counter". In general these include stocks, preferred stocks, corporate bonds, and other securities.

Investors need complete and reliable information about stocks and markets. In addition to the listings, the financial pages of newspapers in all countries contain price quotations and share indexes which give a broad indication of how the stock market, or a segment of the stock market, performed during a particular day.

B. DIALOGUE