Business, Legal & Accounting Glossary
A debt capital market (DCM), sometimes known as a fixed income market, is a market where debt securities such as bonds and loans are traded. Debt capital markets, like stock markets, are used by corporations and governments to raise long-term money for expansion or upkeep.
The key distinction between debt and equity markets is that individuals who buy stock are owners, whilst those who buy bonds are lenders who only have a fixed interest rate.
The debt capital market is an essential part of the global financial market. Although it applies to all debt markets, it can be broadly split into primary and secondary markets. The primary market is when a borrower issues a new bond to raise funds directly from investors, and the secondary market is where old bonds are traded among various entities such as investment managers, hedge fund owners, governments, and other commercial organisations. All securities traded in both markets have one thing in common: they are for a set period of time, with interest rates that can be fixed or variable.
Most companies seeking to raise funds through debt do not trade in the primary market directly. Instead, they approach an investment bank specialising in debt capital management for assistance with fresh bond issuance. This is referred to as origination, and the investment bank involved in this process is referred to as the originator. As a fee for this service, the investment bank will charge a set amount of money. Furthermore, the investment bank may profit from the sale of services related to this bond issue, such as cross currency swaps.
In the secondary market, debt is bought and sold without the need of any intermediaries. Government bonds are one of the most common types of securities traded. The government uses these bonds to raise funds from the general public for development projects.
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This glossary post was last updated: 21st January, 2022 | 0 Views.