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What is Debt Market?

What is Debt Market?

Debt market is basically a market where fixed income instruments/securities issued by the central and state governments, Municipal corporations are traded. The fixed reimbursement securities may also be issued by commercial banks, financial institutions as well as corporate bodies.


The Government securities and bonds issued by banks and financial institutions are regulated by RBI. The issues of corporate (non-government securities) viz. convertible and non-convertible debentures, secured premium notes, deep discount bonds etc. are regulated by SEBI.  However, in India, 90% of trading volume relates to instruments issued by Government of India.

Short-term securities

The Short-term securities, with original maturities of less than one year, are called treasury bills. The debt market where banks and other financial institutions trade in short-term debt securities such as commercial paper (CP), certificate of deposits CDs), repo market (ready forward contracts), treasury bills (TBs), Collateralized Borrowing and Lending Obligations (CBLO) etc. is known as  money market. The money market provides platform to financial institutions for borrowing and lending money for a short term of up to one year.

Bonds/dated securities or gilt-edged securities

Government security (G-sec) and bonds are also called Government stock. The securities are tradable debt securities issued by the central or state government for a certain stated period. The long term (usually called Government bonds or dated securities with the original maturity of one year or more) are called bonds or dated securities. The tenor of dated securities can usually be up to 30 years or in some occasion, it may be even for the longer term. Each note has a stated interest rate which is paid semi-annually. Because the government stocks deemed as no risk of default, they are called as risk-free gilt-edged instruments. The gilt-edged instruments are usually fully tradable and are therefore eligible to be SLR securities.

Wholesale debt market and retail debt market

The debt market may be divided into wholesale debt market and retail debt market. The Banks and financial institutions are prominent participants of wholesale debt market. While banks and insurance companies need Government securities to maintain their growing SLR requirements, the primary dealers participate in the auction for market making and positioning the securities for further sale in the secondary market.  The participants in the Retail Debt Market are Mutual Funds, Provident Funds,  Pension Funds, Private Trusts, Religious Trusts and charitable organizations having large investible corpus,  State Level and District Level Co-operative Banks,  Housing Finance Companies,  NBFCs, Corporate Treasuries, Hindu-Undivided Families (HUFs),  Individual Investors.

Advantages of debt instruments:

Debt instruments are used by the Government for developmental activities, which reduces the Government’s dependency on external sources. Besides, it improves the liquidity in the economy, gives comfort to retail investors of the assured return. The bond market is vital for economic activity as well, because it is the market where interest rates are determined. From a macroeconomic standpoint, interest rates have an impact on consumer spending and on business investment, as they guide people’s decisions to save and to finance major purchases.

Related articles:

What are the difference between equity market and debt market?

Government securities and its operators

What is yield based and price based auction of Government securities

What is money market?

What is call money market?

What is commercial paper?

Different types repos in money market

Certificate of deposit in money market

What is CBLO dealing in money market

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