EURO BONDS: MARKETS, INFRASTRUCTURE & TRENDS: Markets, Infrastructure and Trends

by Marida Bertocchi, Giorgio Consigli, Rosella Giacometti, Vittorio Moriggia, Sergio Ortobelli

Overview

Euro Bonds: Markets, Infrastructure and Trends presents the most recent developments in the Euro bond market. It discusses the problems of the Euro countries, the proposed solutions advocated by European as well as international institutions and investors. Particular emphasis is given to systemic risk and contagion as well as to specific innovative instruments such as structured financial products which protect various classes of investors.This self-contained title provides an organized and comprehensive overview of the current financial situation in Europe and accords the reader the opportunity to understand fully what is happening in the Euro financial market today, as well as some of the possible exit strategies from the crisis. It may be used as an advanced textbook by postgraduate students as well as ambitious undergraduates in finance and economics. It is also useful for non-experts in finance who wish to have an overview of problems in the Euro zone.

Product Details

ISBN-13:	9789814440172
Publisher:	World Scientific Publishing Company, Incorporated
Publication date:	09/24/2013
Series:	WS SERIES IN FINANCE , #7
Sold by:	Barnes & Noble
Format:	eBook
Pages:	288
File size:	5 MB

Table of Contents

Foreword vii

Preface ix

Acknowledgments xiii

Author Biographies xv

List of Figures xxiii

List of Tables xxvii

1 The Bond Market in Europe 1

1.1 Introduction 1

1.2 History and Development 3

1.3 The Main Features of Euro Bonds 4

1.4 Government Bonds 10

1.5 Corporate Bonds 19

1.6 The 2008 Financial Crisis 26

1.7 The European Union Bond 29

Appendix 1.A The Major European Bond Markets 35

2 The Market Infrastructure 49

2.1 Introduction 49

2.2 The Retail Markets 50

2.3 The Electronic Markets 51

2.4 The Clearing and Settlement System 53

2.4.1 Post trading costs 54

2.4.2 The current market infrastructure 57

2.5 The Role of Custodians 59

2.5.1 The Central Securities Depositories 60

3 Government Bond Markets 65

3.1 Introduction 65

3.2 The Euro Sovereign Bond Market Evolution 66

3.3 Country Risk 68

3.4 Bond Spread Dynamics Country-specific Risk 74

3.5 Fixed-income Markets and Financial Risk Premia 76

3.6 Sovereign Risk and ECB Policy 80

4 The Corporate Bond Market 87

4.1 Introduction 87

4.2 Recent Evolution 88

4.3 Euro-corporate Bond Indices 93

4.3.1 Bond indices and default probabilities 99

4.4 Moody's 2011 Global Credit Report 100

5 Credit Rating Agencies 107

5.1 Introduction 107

5.2 The CRAs 108

5.2.1 The role of CRAs 110

5.2.2 Credit ratings 111

5.2.3 Taxonomy of rating 115

5.3 Regulation of CRAs 117

5.3.1 Conflicts of interest 123

5.4 The Importance of Competition 126

5.5 Rating Methodologies 129

5.5.1 General principles of the rating process 134

5.5.2 Input factors for the rating process 138

5.5.3 Grading process for the rating agencies 139

5.5.4 Rating announcement 140

6 Securitization Market 149

6.1 Introduction 149

6.2 Asset Classes 150

6.3 The Securitization Process 154

6.4 Rationale for Securitization 159

6.5 The Market Evolution 161

7 Market Bond Products 171

7.1 The Covered Bond Market 171

7.1.1 Introduction 171

7.1.2 Basic features 172

7.1.3 Market evolution 175

7.1.4 Primary market 177

7.1.5 Secondary market 179

7.1.6 Covered bonds in the sovereign debt crisis 182

7.2 Inflation-Linked Bonds 185

7.2.1 Introduction 185

7.2.2 The development 186

7.2.3 The role of ILBs 187

7.2.4 ILBs and monetary policy 189

7.2.5 Portfolio selection with ILBs 191

7.3 Bond Exchange Traded Funds 195

7.3.1 Introduction 195

7.3.2 The development 196

7.3.3 Basic features 198

7.3.4 Tracking errors and performance 200

7.3.5 Portfolio selection with BETFs 202

Appendix 7.A Risk and Reward of Bond Portfolios 209

Appendix 7.B Two Approaches for ILBs Portfolio Selection 210

Appendix 7.C Two Approaches for BETFs Portfolio Selection . 212

8 Credit Derivatives Market 223

8.1 Introduction 223

8.2 The CDS Market 225

8.2.1 The single-name CDS 225

8.2.2 CDS as a measure of credit risk 227

8.2.3 Market features 229

8.2.4 Factors determining the credit spread 231

8.2.5 Bond yield and CDS spread 234

8.2.6 Pricing a CDS 235

8.2.7 Multiname credit derivatives: basket products and CDS indices 236

8.3 Collateralized Debt Obligation 238

8.4 Case Studies 241

8.4.1 Forward-looking measures of default probabilities 241

8.4.2 Extracting joint default probabilities from CDS 243

Appendix 8.A Unconditional Default Probability 246

Index 249