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Enhancing Bond Market Valuation: Key Challenges and Innovative Solutions

This presentation by Nitin Jaiswal from Bloomberg L.P. addresses the vital importance of bond valuation in Asian financial markets. It explores key challenges associated with both government and corporate bonds, emphasizing regulatory frameworks like IAS 39 and Basel II, liquidity issues, and transparency requirements. Suggestions for creating a robust valuation model in the Asian context are provided, along with discussions on the complexities of corporate bonds, including their diverse structures and information disclosure challenges. A transparent valuation process is essential for attracting investments and enhancing market liquidity.

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Enhancing Bond Market Valuation: Key Challenges and Innovative Solutions

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  1. Contentpage 1 • Valuation of Bonds • Key Concerns and Solutions Nitin Jaiswal Bloomberg L.P

  2. 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.

  3. Contentpage 1 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.

  4. Contentpage 1 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.

  5. Contentpage 1 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

  6. Contentpage 1 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

  7. Contentpage 1 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

  8. Contentpage 1 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

  9. Contentpage 1 Your Thoughts and Ideas • Better Bond Valuation Models.

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