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Debt Capital Markets

Debt Capital Markets

The debt capital market (DCM) is an exchange for debt securities. In other words, it’s a place where companies can sell debt usually in the form of bonds to investors to raise funds. 

Thrivent is a top-ranked advisor, arranger and issuing agent of public and private debt market products such as bonds, as well as of capital market programmes in the form of commercial paper and Medium Term Notes (MTN).

We have extensive experiences of working in the EURO Zone - with a product range that extends from covered mortgage bonds across subordinated loans to other structured debt instruments.

Key Terms for Understanding DCM

A bond is a type of investment an investor essentially loans a company money when they buy a bond. In return for loaning (or investing) that money, the buyer receives the promise of future repayment and a fixed rate of interest above their initial investment. Companies, organizations, and governments issue bonds for other entities to buy so they can fund projects quickly. Issuing a bond puts the issuer in debt to a buyer the money has to be paid back with interest. The bond comes with a contract that explains how much the bond is worth when it must be repaid, and how much interest will be charged. 

Fixed-Income Markets 

Debt capital markets are also called fixed-income markets because investors see a stable or fixed rate of return on their investment an interest rate. 

Interest Rates  

An interest rate is a percentage of a loan, or lent money, that the borrower is required to pay back to the lender in addition to the original amount. Most bonds have a fixed interest rate, meaning it’s set when the bond is issued and does not change over the life of the bond. However, some debt securities have variable interest rates, meaning the interest rate can change based on an underlying metric, such as market conditions. 

Primary Market

In the primary debt capital market, governments and companies issue bonds directly to the consumer, such as a company looking to secure debt funding.

Secondary Market

The secondary debt capital market involves the resale of already issued bonds for a higher or lower price, depending on the market.

Types of Securities in DCM

Debt capital markets rely on the same premise as the investing world at-large one entity (the issuer) offers a security for sale, and another entity (the buyer) purchases the security. The issuer profits from the sale of the security; the buyer gains capital to accomplish goals. The main difference is that the securities in DCM are bonds, rather than stocks or shares of a company. 

Some common types of bonds bought and sold in debt capital markets are: 
Investment-grade bonds: 

Bonds that are low risk (likely to be repaid with interest)

High-yield bonds: 

Bonds with high returns (high interest rates), but also often high-risk (less likely to be repaid with interest)

Government bonds:

Bonds with high returns (high interest rates), but also often high-risk (less likely to be repaid with interest)

Emerging markets bonds: 

Bonds issued by the governments of developing countries, which typically have a high yield but greater risk of default than investment-grade or typical government bonds