Public Debt Management
Glossary
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Accrued Interest – interest earned on a OT since the last coupon date and the settlement date of a transaction. Banking syndicate – method usually used for the launch of new lines of Obrigações do Tesouro (OT), since it fulfills the dual objective of simultaneously placing a larger amount of securities at market prices and achieving a greater diversification of the investor base, both geographically and by type of investor. The syndicate placement together with the book building process allows IGCP, E.P.E. to permanently monitor the orders and to intervene in the allocation of orders, making it possible to reach the objectives of broadening and diversifying the investor base. Basis Point (b.p.) – one hundredth of one percent, i.e. 0.01%. Saving Certificates (CA) – debt instrument issued with the objective of capturing households’ savings. Their main feature is the fact that they are retail distributed, that is, they are issued directly to natural investors, with capitalization of interest and may only be transferred by the death of the holder. Clean Price – price at which OT are traded in the (secondary) market that does not include accrued interest between the date of last coupon and the settlement date of the transaction. Coupon – interest paid periodically to the bondholder. Convexity – volatility measure that corresponds of the negative of the second derivative of the price of a bond in relative to its yield, divided by the bond’s price. When used together with modified duration is a measure of how the bond’s price changes as a result of interest rates’ changes. Dirty Price – bond’s price that includes accrued interest between last coupon date and settlement date. Duration – A measure of the change in the value of a fixed income security resulting from a 1% change in interest rates. Duration is stated in years and is defined as the weighted average of the present value of the discounted cash flows, the weighting factors being the cash flows’ time to maturity (in years). Fixed Rate Government Bond (OT) – security representing a medium to long-term Republic of Portugal loan, with a face value of EUR 0.01, with time to maturity between one and fifty years. OT are placed through auctions, syndicates or by tap and that pay (or not) interest periodically and are redeemed on maturity at face value. Floating Public Debt – public debt contracted to be fully redeemed until the end of the budgetary period in which it was incurred. Funded Public Debt – public debt contracted to be fully redeemed in a budgetary period subsequent to the period in which it was incurred. Grey Market – transactions carried out before the issuance of new securities. Those transactions allow the issuer to evaluate the demand for those securities and to deducte the issue price. Interest Rate Swap (IRS) – contract traded on non regulated markets, that consists in the exchange of a fixed income by a variable income, usually a fixed inetrest rate by a floating interest rate (usually plus a spread, i.e., usually Euribor +/- spread). Maturity Date – date on which the face value of debt instruments is redeemed and, if apllicable, the last coupon is paid. MEDIP – the Special Market for Public Debt that is a regulated market under the Portuguese Securities Code, aimed at the wholesale electronic trading of Portuguese public debt – Government Bonds (OT) and Treasury Bills (BT) – between specialists (i.e., institutional investors that trade by own account) and that was created by a Ministerial Order of the Minister of Finance. The market is under the supervision of the Portuguese Securities Market Commission (CMVM). The market is based on a quote driven model, the liquidity of the market being supported by market-making requirements of some of its participants (market makers). Modified Duration – A measure of the price sensitivity of a bond to yield movements. Equal to the Duration divided by (1+ bond yield). MTS Portugal – a joint-stock company whose main shareholders are the Primary Dealers (OEVT) (with a joint capital share of 70%, evenly distributed), IGCP and MTS S.p.A. (with a 15% share each) and that manages MEDIP. Nominal Value (NV) – face value of securities that is redeemed at maturity and that is the value used to calculate the interest paid. Other Auction Participant (OMP) – The OMP status is granted to institutions which, not fulfilling the requisites to be an OEVT, contribute to the objectives defined for the management of government debt through their participation in the primary and secondary bond market. This may be considered as a first step in acquiring the OEVT status. OMP are granted access to the competitive phase of the auctions, with the obligation of buying bonds in at least two of the year's auctions and participate in MEDIP. Primary Dealer (OEVT) – the Primary Dealer (OEVT) status is granted to financial institutions who actively cooperate with the IGCP, E.P.E. in meeting the objectives for the management of government debt, namely as regards the issuance and promotion of efficiency and liquidity of the Treasury bond market. The OEVT status is granted for periods coinciding with the calendar year and may be renewed annually and at the end of each year, the IGCP, E.P.E. will evaluate the performance and contribution of each OEVT to the objectives of the status. Institutions to which the OEVT status is granted must participate as shareholders of MTS Portugal, the managing company of MEDIP. To OEVT are granted a set of rights that are counterbalanced by a set of duties. Primary Market – market where the securities are issued and subscribed by investors or where the outstanding of on-the-run issues is increased. Repurchase Agreement (Repo) – transaction that consist on the sale of a security with the simultaneously agreement for the repurchase of that security at a specified time and price (price of the initial transaction plus a remuneration given by the repo rate agreed). Secondary Market – market where the securities issued in the primary market are traded. The liquidity of the secondary maket ensures the quality of the primary market and the evaluation of the securities traded. Spread – difference between interest rates, like the difference between a bond’s yield and other rate, namely, a swap rate. Settlement Date – date on which occurs the transfer of securities from the account of the seller to the account of the buyer and of cash from the account of the buyer to the account of the seller. For OT transactions settlement takes place three working days after the transaction date and for BT transactions settlement takes place two working days after the transaction date. Treasury Bill (BT) – security that represents a short-term Republic of Portugal’s loan, with a face value of one euro and time to maturity up to one year. BT are issued at discount through auctions or limited subscription and are redeemed at maturity at its face value. Treasury Bill Specialist (EBT) – The EBT status is granted to financial institutions who actively cooperate with IGCP, E.P.E. in meeting the objectives defined for the management of government debt, namely regarding the issuance and the promotion of efficiency and liquidity of the Treasury Bill’s market. The EBT status is granted for periods coinciding with the calendar year that may be renewed and at the end of each year, IGCP, E.P.E. evaluates the performance and contribution of each EBT to objectives of the status. To EBT are granted a set of rights that are counterbalanced by a set of duties. Treasury Certificate (TC) - debt instrument created in order to capture household's savings, issued directly with investors (single investors), with annual distribution of interests and may only be transferred by the death of the holder. Yield curve – relationship,at a given point in time, between yields and time to maturity of a set of bonds of the same class of risk. |
