Government Liabilities

The government bond and liability markets have the following characteristics:

• The emission of both assets is done on the primary market through auctions.
• The treasury established a calendar at the beginning of the year through a monthly auction in which all the petitions are received. After that, the treasury adjudicates the price and volume demanded.
• The auction mechanism is by sections; at the beginning of each emission the treasury fixes the coupon that the securities will pay on the next three auctions.
• The functioning is al follows: they calculate medium ponder price and a marginal price the petitions that situate themselves between both prices are adjudicate at the price of the supplier; those that are above the ponder price will be adjudicated at that price; and those that are below the marginal price will be rejected.
• In case the objective of the collocation is totally covered, the preferential institutions will have the possibility to apply for a second round in which they can receive up to three petitions with as amount below the medium amount calculated at the auction.
• There exists two ways to operate on the secondary market depending on the participant agent (Treasury, Central Bank, -Financial Institutions, or final investors): operations between account holders in the annotation system and operations between them and private persons or “ thirds”, that is, families and companies that aren’t holders of the account.
• By own account, in the case of financial institutions holders of accounts in the Central of annotations.
• It is a service that belongs to the Central Bank that negotiates, on the treasuries account, the emissions and amortizations of the securities of public debt included in an account on the annotation system.

By own account and of others, in the case of the negotiators, being:

• - With complete capacity: they can realize all kinds of operations with their clients.
• The market between holders and thirds is based overall in the repo * operations than in the simple buying and selling. In this type of operations stipulate an action of buying with an act of re-buying. The buyer of a security of public debt is obliged to resell it to the same person at a prefixed price. This implies that the seller in a double operation is obliged to re-buy the asset at a prefixed term and price.
• - With restricted Capacity:  They can do operations with their clients as receivers of commissions.  These institutions are not permitted to have any annotation in their own name.

The following is a list of characteristics that are referred to the medium and long-term public debt:

• It usually gives fiscal advantages that increase the profit.
• They offer security (minimum risk) due that they count with the guarantee of the government or of the public institution that issues them.
• They offer an interest that is usually somewhat less than those offered by securities of fixed interests issued by private institutions. However, the previous two characteristics, not extensible to the private debts, compensate this less retribution.
• If we classify it according to the function of maturity payments, it may be temporary or perpetual. In the first place its last expiration is fixed beforehand and in the second the principal is never refunded. In the temporary debt, the refunding term is basically finite while that in the perpetual debt the terms are infinite.
• There exist internal and external public debts. The internal is when it is issued inside the own country and the external is when it is emitted outside the country, but in both cases the issuer is the same.

This way, the German government, for example, can decide to issue debts in its own country, Germany, but also has the possibility of issuing German debt in France or any other country.

Beginner Money Investing Assets Traded on the Stock Exchange Market General Types and Characteristics Government Liabilities Short Term Public Debt Private Debentures Debentures with Warrants