The Debt market is for trading in Government Securities, which bear different interest rates and different maturity values, e.g 7.4% 2012. Here, 7.4% represent the interest rate, but daily yield is calculated for each instrument based on the Yield formula, which is inversely related to the price. These are the securites offered by government to Institutions. Goverment Securities are also known as GILTs, so the market GILT market.
In debt market, the investors are mostly Banks, Mutual Funds and Financial Institutions. Though trading for retail investor is also now permitted but does not interest retail investors, as being too volatile. Banks invest in Debt to meet their ratio requirements and Mutual Fund having Debt plans invest in GILTS.
The Debt Market has seen a huge decline in yield. Though currently 10 year yield is at 6.5 %, but last year touched the lows of 5.85%. In year 2002, this used to be 7.5%.
In a debt market, the gains are mostly based on Economic factors like GDP, Inflation, Wholesale Price Index, Foriegn Exchange Reserves, Liquidity, etc. But it reacts sharply to comments made by RBI Governor, Finance Minister, etc. Even though other positive factors exist 😯
It inlvoves a lot of uncertainty. Also at intervals RBI carries out Repo Auction to adjust the liquidity in the market.
The trading takes place in the lots of Lakhs. And all the instruments move in one direction, which is opposed to the stock market, where you may make profit even on a day, when the market has seen huge declines, i.e. some shares move up and some down. Plus mostly the gains are from 5-15 paise movement only.
Further, the debt instrument have attached to them interest part, which is also earned by the institutions in addition to the profit-booked.
Not Recommended: Escorts GILT Plan :no:
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