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Assuming one-month to expiration would you? The figure of market makers, key to the development of the market, is also analyzed Chapter 5. Seeing the large margin number was not pleasant.

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Emissions trading, or cap and trade, is a market-based approach to controlling pollution by providing economic incentives for achieving reductions in the emissions of pollutants. In contrast to command-and-control environmental regulations such as best available technology (BAT) standards and government subsidies, cap and trade (CAT) schemes .

The first "real" futures launched today on CBOE. More Jan 50 "catastrophe" puts in Tesla Motors Inc. Put-palooza in GameStop Corp. Cheapie call roll in Glu Mobile Inc. The war for Bitcoin derivatives is heating up again. Nasdaq also announced futures with a planned Q2 launch. With so many choices-How will you trade Bitcoin in ?

Someone has the gall to downgrade Tesla, but the stock still rallies. It was the highest November ever for options volume. Jan 50 "Catastrophe" puts in Tesla Motors Inc. Puts trade in Amgen, Inc. The war for Bitcoin Derivatives is heating up again. GOP tax plan passes the Senate. Weird backwards post-earnings roll in L Brands Inc.

How do you think you'll be trading Bitcoin in ? Dow sets new record by hitting 24, and SPX hits 2, This was the fifth 1,point milestone for the Dow this year, first hitting 20, on Jan. The market is still in rally mode, awaiting tax deal.

North Korea unable to spook the market. More Jan 50 "Catastrophe" puts on the tape yesterday - OI breaks 30k. Near-term Dec call love in Caesars Entertainment Corp. SPY always dominates the options volume charts. But what do you think people are actually trading in SPY? Looks like QCOM activity is actually a dividend play. Light on earnings this week. Goldman execs cash out decade-old options just days before they expire.

No cheating or checking with your broker - use your grey matter and your "gut" to pick the right one. We are not letting the Thanksgiving holiday get in the way of you getting your Option Block fix on.

What are the uses for binary options? Binaries as a way to trade options. VIX coming back to life. House passes tax reform, will congress unify behind a single plan?

Uncle Mike speculates on winter weather and resulting oil demand. There is still earnings on the horizon, including: Put-palooza in Time Warner Inc. Will option vol come down? Are people going to take the money and run? Are we heading for more carnage? Putin says he didn't do anything to the election. Catastrophe puts in Tesla Motors Inc. Size put roll in SEAS. Uncle Mike is looking at oil and financials.

Sebas is wondering what will happen on Tuesday. Trading Options during Earnings is a coin flip. What's your Earnings Options MO? How many tax brackets? High-yield bond charts look ugly. RCM webinar on Wednesday, November 8th, Options tracker in Tesla Inc. This season's theme "Buy Premium"! Under Armor before the bell tomorrow. Pre-earnings put-palooza in Under Armor Inc. Reviewing what's happening post-earnings. Is North Korea testing hydrogen bombs? After-hours options trading would have been fun this week.

Calls trade in Fortuna Silver Mines Inc. The question now - what is the best way to make it happen? Massive closing paper in Norfolk Southern Corp. Size upside love in Comcast Corp. Everything macro and the lack of reactions to everything macro. Earnings are coming up. Apple continues to rally. Puts trade in GameStop Inc. In BrokerMadness spirit, lets bring the fight to exchanges. What is your fav?

Where do you send your business? Everyone's got electric cars on the brain. How are you playing the shift to electric in your Options trading? A quick overview of our live show from last week.

A quick summary of the TSLA "catastrophe" puts. Will we have five straight days of VIX below 10? What is the Pro Trader Summit? VIX is back in the single digits. Memories of trading floor days. VIX is back in the double digits hitting VIX volume is exploding: Will traders take a knee too? Return of the VIX whale? VIX is back in the single digits, hitting 9. Size collar trade in Amicus Therapeutics, Inc. The listeners pick the strategy block: Uncle Mike discusses selling premium with a 9 VIX.

What shoe will drop? Equifax gives away the keys to the kingdom. One exec even cashed in his options before the public disclosure. EFX options volume up is again today. TSLA Options tracker is back.

Size call vertical in Visa Inc. How do you prep your portfolio? Well-timed, lucky or illegal? I have recently been looking at some Apple calendars. Aren't these supposed to be the same and since they are not can you arb this, especially if you do not have commission charges.

Trading VIX iron condors. Watching Tesla, just because you can't help it. Who is calling the volatility shots? As Q4 looms, where are you placing your bullish Volatility bets? Which has most Upside by end of ?

Hurricane Irma puts Florida in it's crosshairs. The numbers are in: August was surprisingly strong. Earnings season is in the rearview mirror now. Upside call love in Himax Technologies, Inc. Hurricane cannon pointed at the southeast. NFL season kicks off tonight. Tension between China and North Korea. A thin day in the market. Lululemon LULU after the bell: Will invisible yoga pants strike again? Amazon announces price cuts at Whole Foods, Hurricane Harvey bears down on oil central.

Earnings are still happening! Rolling calls in Genworth Financial Inc. Question from Salman Azhar: Are call or put diagonals better for bears. Math is same but practice? ULTA pared off the earlier selloff. What's happening in Jackson Hole? GoFundMe to buy Twitter. The eclipse hits the U.

Steve Bannon gone from the White House. Which Options are you looking forward to trading this week? Donald Trump sympathizes with Confederate statues. A look at George Soros options positions. Puts trade in Urban Outfitters Inc. Is this the end of low Volatility? Or a temporary blip? Which Options Exchange or group has carved out the largest piece of the Options market so far in ?

Uncle Mike Tosaw discusses what happens when low volatility gets higher in the course of just one day. BOX Options is opening a new trading floor. What do you think of the planned launch of cash-settled Bitcoin futures later this year? Scaramucci Maybe 2-week options should be called Scaramuccis? Comment from Tim A. What about a box? Often on segments like the odd block or similar segments on your other shows you talk about someone going bullish or bearish on certain contracts.

For example let's take the Tesla way OTM puts you have mentioned. You talk about someone wanting to be long those catastrophic Tesla puts, but for each trade there is some party taking the other side. Since there is always another party in these trades why isn't it the inverse analysis - in this case for example that someone really wants to sell way OTM TSLA puts?

Bezos surpassed Gates ever-so briefly as richest man in the world. Then there was a selloff. Are you a buyer or a seller? Earnings season is back! TSLA options tracker - "catastrophe" puts hit the tape today, 20 more Jan 20 puts also trade today. A double strategy today! A put roll down trade in silver and a modified collar trade in XLF. Aug 8 calls top the charts so far. Listener Question from Darqane: Assigned on short SPX puts means getting long the underlying? But how does that work if it is cash settled?

A plan for new trading pit triggers a feud in the U. Puts roll in L Brands Inc. LB Puts trade in Gap Inc. Welcome to our th episode. Today's special panel includes: It's all strategy in this abridged episode of the Option Block. Today, uncle Mike discusses what you an do when you're not connected to your computer, including:. Everyone is talking about Bitcoin Volatility these days. Where do you stand on Bitcoin after last weeks aggressive downturn?

Let's get back to basics. What's your fav way to go long? Taking the weekend out of the market. Biotech and the effect of the AHCA bill. Crude and the energy section taking it on the chin. PAA call spreads trade in Praxair, Inc.

Did we turn a corner? Do we have a lack of shellac? Everyone wants to be everything. Where do you stand on Bitcoin after last week's aggressive downturn? The Federal Reserve announced a quarter-point rate hike Wednesday as expected.

The market keeps shrugging off news about Trump. The news deluge, with its quasi facts, is making people numb. But recent events have us asking again: What is up with VIX today?

How low should VIX go? Are you in the Goldman camp or the Barclay's camp? Gaming segment hot today. Big news out of the E3 show. Comey talks before the Senate - the markets shrug. VIX still in double digits, barely. Mike discusses the importance of having different strategies for different underlying, in similar scenarios. Why buy these puts? Comey swing and miss. Will we make a new all-time high? Fed news conference next Wednesday.

The VIX is back to flirting with its lowest levels ever. Keep an eye on APPL. The World Wide Developer Conference begins this week. Calls trade in Cenovus Energy Inc. Do we need to bring back mini options with all of these high-priced stocks? The crude rally continues. Guess what the number one position in Tesla is right now? How would you trade? Question from GuruHawk -How do you know the shares were purchased as well?

I see the volume on the option But to know workings of intent? What is going on in the June 16 SPY contract? Market reaction to the decision to pull out of the Paris Climate Agreement.

How low can VIX go? Calls trade in Pandora Media Inc. Options Question Of The Week: There are still a lot of big names reporting in earnings season. Which ones are on your options watchlist this week? A bull rally in the market. Still a lot of big names reporting in earnings season. This volatility implosion is starting to make people nervous.

How Low Can It Go in ? VIX near the single digits at the 10 handle. Is the VIX too low? Tesla, Facebook, Disney and EA. These are crazy times for all markets from commodities to equities and volatility. Which crazy level will we hit first? The Trumpcare bill and French election, how might they affect vol? Thank you to Steve A for the fan art!

Do you trade options on cheap stocks? Looking ahead to AAPL earnings. Wonderful is loving AAPL right now. Quarterly earnings continue to roll with one of the biggest names of the season set to announce Tuesday after the close.

Technology giant Apple Inc. In addition, there are other big names announcing as well including Tesla Motors and Pfizer.

Calls trade in Applied Optoelectronics Inc. GGP , puts trade in Excelon Corp. Glad to ask a? Yeah, I got assigned 2 of 3 my put spread.. Seeing the large margin number was not pleasant.. Call spread selling in Thor Industries Inc. Today we have very special guest co-hosts: Question from AndersonInvesting - New to options.

I use TD Ameritrade but currently I do not like it for options. I was looking at Charles Schwab. Any recommendations for an options newbie? Also looking at AMD puts to protect gains averaged in at Earnings date has been announced for May 1st.

The year anniversary of the vote to join WWI. VIX pops after Syrian attack. New week highs new highs today: LULU craps the bed. Stock market climbs after economic data, with banks in lead. Tesla produces more PR noise. Vol skew gets dumped. Should technical analysis be applied to VIX?

Stock-market fear threatens a return, as Dow stares at longest losing streak in 6 years. Options BrokerMadness tournament going on now. Comment from VoiceOfReason1 -Options seems far too complicated - too much thinking involved.

I follow the penny stock community - they are usually dead accurate. Why the bull run will stay in great shape even as the health bill troubles traders. What's your Zombie weapon of choice? The stock market slipped following Fed rate-hike rally, declining in oil prices. If you had to buy Volatility-which is the best value? Are SNAP options set for strong demand on their market debut? Fed kicks off tomorrow. Puts trade in Encana Corp. If you had to buy Volatility, which is the best value?

An escalating broker price war has begun. The first big IPO of the year is off to the races. AKA how much movement do you expect? It is a very heavy week as far as economic reports go with a bulk of them coming on Tuesday and Wednesday.

Where did February go? Mar 2 - Jobless Claims. Dow sets sights on 12th straight record close. WarrenBeatty screwed up Best Picture. What is your biggest Options screwup? How low will it get during the rest of his term? Earnings earlier this week. What is your go-to spread? I buy 1 Feb What am I missing? Why does everyone say this earnings stuff is so hard? Like many burgeoning tech startups, Snap warned that it? Rest of Nasdaq seemed bright green. Question from Richard R.

Is this just the current ATM straddle? The market will be closed Monday, February 20 for Presidents Day. This week in the market - Feb Apple did not reach all time highs, but its close price is an all time highs. All time highs happened on April 28, ICE Cool on Options: Question from Game Day Dog - Hi.

I am worried about max risk. How is this different than selling a naked option if my protection is OTM at expiration? Can you discuss the "surprises" or things to watch for with vertical spreads? DIS earnings on Tuesday: Options QuestionOfTheWeek - With so many different Options expiration cycles available weekly, etc - which duration do you prefer?

But there is more than just earnings. The Snapchat IPO looms ahead. Time for another Earnings StraddleBattle: Which stock will outperform its straddle by the largest margin? Call writer in Coach Inc. STZ and calls trade in Pfizer Inc. Calls trade in Kate Spade Co. Lots of earnings on the horizon.

Stocks tumble ahead of Trump inauguration - Dow off Another crazy earnings for NFLX. How a one-two, Trump-Yellen punch may move interest rates. Dow drops about points. Who can slow down the Amazon juggernaut? Oil drop stymies the Dows march to 20, Tech stocks send Nasdaq to record, Apple is celebrating the tenth anniversary of the iPhone.

Gold prices settle at highest level in nearly 6 weeks. The options market is not too worried about retail XRT woes, but should it be? First QuestionOfTheWeek for How will Options volume compare? A look back at the year in the options market. An overview of Lightspeed Trading with guest co-host Kevin Ott.

Oil falls for the first time in nine days as U. Will be a lighter trading week as many traders and investors will be taking the week off because of the holidays. There are a couple of economic reports worth noting listed below. Calls trade in Globalstar, Inc. Major market indices are pushing record highs. Everyone has protection on the brain. How do you protect your portfolio? Vol off half a handle. How likely is the Fed to make an announcement before the end of the year?

Financial advisors represent the last options frontier. What level of options knowledge do you expect from your advisor? The market and everything else rallied. What's the scoop with the shiny stuff? Stocks mixed as Dow hits another new record high, flirting with 20, Crude and XLE up too.

Understanding the minutiae of VIX. The Tao of Don: Sell or sell not. There is no buy. CrudeOil has been volatile lately. Where will Crude Volatility close on Friday? Apple still up on the year. What might next year look like? Earnings after the bell today: Why was November such a massive month for markets around the world? Commodities are capturing a lot of attention and generating a lot of Volatility. What's your option of choice? Jobs report and the Fed set the holiday table this week.

How the "Trump bump" to the U. What is your option of choice? Goldman insiders underwater options were salvaged by the Trump election. There are still earnings being released. Great traders need many weapons in their arsenals. But everyone has a favorite. A mild market rally today. VIX cash back below the handle. Yellen says Fed might hike interest rates relatively soon. Jobless claims in U. Oil gets left behind in post-Trump rally. Trump presidency raises questions on the future of Wall St.

Pharma pop on Hillary loss. Uncle Mike Tosaw discusses what to do when you get called away from a covered call. Checking back on the earnings straddles from the top of the show. Who will be in the Trump cabinet? Will tech buyers show up? Dow soars points after FBI clears Clinton again. Are certain volatility funds raising election risk for the stock market? Earnings today after the bell.

Which outcome is most likely? Does that mean Trump will win? The tumultuous presidential election could peak the VIX today. Emotional uncertain about the election? Stick to your investing plan. Calls trade in Metlife Inc. The big story is the elections, even during earnings season. Will the VIX continue to roll up?

A lot of up, a lot of down, but going nowhere. Earnings today before the bell: Earnings today after the bell: Would you please share your thoughts? Dow drops amid weak China data and rate fears. Will it be a cold winter? Will that spike energy prices? Deutsche Bank says derivatives exposure fears overblown. Twitter shares plunge on report bidders are scarce. Dow soars as traders await earnings season; Nasdaq near record high. What is your fav way to trade Volatility?

The Federal Reserve releases the notes from its last meeting. There are several other economic reports worth noting listed below as Alcoa kicks off another round of quarterly earnings. An anemic day in the market. Deutsche Bank does not need a bailout for now, IMF says. What is your preferred way to trade Volatility? It is that time of the month: Exchange-listed options volume reached ,, contracts in September, up one percent from September volume of ,, contracts.

Quarterly sales numbers are strong. Are we heading for Trump-ocalypse or Clint-astrophe? For more information, please visit the Rocktoberfest website. Most indices closed sharply lower. That means the VIX closed higher. Was Deutsche Bank the biggest story of the day?

The media dropped the dreaded "D" word. Crude is up again. Uncle Mike discusses the biggest frustrations with collars and alternatives to that. Vol begins to head north again after a big selloff in VIX on Friday. The debates are coming! Merkel has no love for Deutsche Bank. Golf loses a king, Arnold Palmer. What can investors learn from his endorsements?

Are you seeing Trump in the rearview mirror? Interesting turn into exchange consolidation rather than fragmentation. Have you checked out the OptionsHouse blog?

OPEC meeting coming up, and they invited Russia. It looks like we were not pessimistic enough on Vol Views last week! How will next weeks first Presidential debate effect vol? Wall Street extends rally after Fed rate decision.

Fed is perilously close to losing its credibility, says economist. It is no longer the Feds market, it is now Apple's market. Volatility is coming back! Wall Street gains on Apple, dimmer chances of rate hike.

Dow rebounds points amid rate hike debate. Vol explodes higher and the bulls' confidence is tested. Shares of Tesla Motors Inc. It is a heavy week as far as economic reports go with Thursday at 7: In addition, quadruple witching expiration takes place on Friday.

August this year was the lowest average daily volume for puts and calls since October Bill Gross says Janet Yellen has "Mastered the art of market manipulation. Puts trade in Iridium Communications Inc.

Reviewing a trade from last week in Big lots Inc. Gamestop, Ulta Salon, Cosmetics and Fragrance. Mylan NV responded Thursday to backlash over price increases for its EpiPen emergency allergy treatment by promising to reduce the costs that some patients pay, though the drugmaker stopped short of saying it would roll back prices or limit future increases. What to expect from Fed Chair speech at Jackson Hole. UAL , call buying across strikes in Goldcorp Inc. CG , and put spread buying in Big Lots Inc.

Uncle Mike Tosaw discusses trading covered calls, even when they are not paying a lot. Yellen speech at Jackson Hole set to dominate mood on Wall Street. VRX continues its roller coaster ride. Confirmed Monday that it has hired Zoetis executive Paul Herendeen as its new chief financial officer.

Looking out 1 month would you rather:. Earnings highlights for Friday include: New all-time highs across most major indices.

Oil rallies yet again; up 1. VIX cash still below the handle. Vertical put buying in Polaris Industries Inc. Strong earnings, surge in oil power Dow to record intraday high.

Earnings today include before: Options bears descend on Valeant ahead of earnings. Traders are betting shares are due for even more pain. Non-farm payroll brightens the U. Puts trade in Tupperware Brands Corp. SM , calls trade in Targa Resources Corp.

Takeover rumor sparks busy day in Twitter options. Options Auctions, offering competitive price improvement opportunity. OptionsHouse is now the sponsor of The Option Block. Not many earning today, but a big week is ahead. Apple after the bell tomorrow. Oil prices fell to two-and-a-half month low. Verizon owns the internet from the 90s, AOL last year, Yahoo today.

Calls trade in Crown Castle Inter. The coup that wasn't. A Brexit swoon boosts US options volume to a month high. Legislation to impose financial transactions tax introduced. Clinton aims "Wall Street" tax at Flash Boys, not banks.

Calls trade in ConAgra Foods Inc. What do the all-stars discuss? The urgency of the Fed to hike has faded away as Brexit further clouded the outlook. Twitter Poll Options Question of the Week: Which products' performance post- Brexit surprised you the most? Options Question of the Week Twitter Poll: Calls go up in Hershey Co.

Vol coming in due to holiday weekend. Will there be a selloff due to quarter end? Will bonds come down at all? Brexit provides a review of pitfalls for options and futures traders. Oil extends decline as Brexit fallout spurs market volatility. Could the Fed potentially reverse course and cut rates? Results due late Thursday night. Tesla owner Elon Musk wants to acquire SolarCity, another company he owns. Bull call spreads trade in RiteAid Corp. Much ado about nothing?

Is that it for volatility? Goldman slashes stock demand estimates. Beyond The Stock Market: Fed keeps rates unchanged, lowering odds for future hikes. Weak Nonfarms number derailed any Fed plans to raise in June. Calls trade in Activision Blizzard Inc. Today we have a special guest co-host: Billionaire George Soros returns as a Brexit bear. Market not spooked by Yellen today. Brexit worry has radiated around world as poll puts traders on edge.

Calls trade in Xilinx Inc. M , and calls trade in Marriott International Inc. Is the collar skew still favorable? GLD vs Futures options. The SEC has obtained a court order to freeze the profits of a trader who allegedly manipulated a technology stock through a false regulatory filing traced to a computer in Pakistan. What's coming up from the Fed? What's happening with the ag markets? Brexit and pound skew. Should we sell in May and go away? Will anything useful come out of the Fed meeting?

Will the United Kingdom leave the EU? Yen volatility surges as Central Bank meetings loom. Hedge funds are not what they used to be. Puts trade in Twitter Inc. Last week, the options question of the week was "What is your favorite options trading film? A little flip on volatility. Apple is no longer the most valuable company in the world. Will online retailers take over retail stores? Monsanto cheater, could you be more obvious? Which side are you on?

Traders on edge as Staples-Office Depot deal decision looms. Are markets more sensitive to the Fed these days? Earnings "Straddle Battle" pitted Tesla against Alibaba. Other interest in Blizzard, XLE. On the economic calendar this week are the ISM manufacturing index, international trade data and jobless claims on Thursday.

Lastly, the week ends with the all-important monthly employment report for April. Options Traders Brace for Amazon Earnings. Earnings before the bell: Icahn bails out on Apple stock. Nasdaq mulls new exchange to ease trading in illiquid ETFs. A final section includes the results of this strategy. The benefits offered by financial intermediation in general, and of the securities market in particular, are well known.

This market also works as a complement for lending and savings through banks, the second major vehicle of financial intermediation. How is a government securities market developed? Karacadag, Sundararajan, and Elliott symbolically represented in a pyramid the hierarchical order domestic financial markets follow to achieve their development Figure 1.

They recognized the interdependence existing among each market and identified the markets located at the base as fundamental to achieve the development of those at the top. According to this hierarchy, the government securities market is located on the second and third levels government and treasury bonds. In any of these markets, issuers in need of financing converge with investors that are seeking to put their resources to work in an instrument bearing a yield. The contact between issuers and investors is facilitated by intermediaries.

For this to occur, an infrastructure is needed that facilitates the settlement of transactions, which is used in the price formation process, that guarantees the legal ownership of instruments. Finally, the regulatory regime completes the regulatory framework of these financial operations.

Under this scheme, the degree of efficiency in the intermediation process will determine, to a great extent, the degree of development of the market. This range of alternatives will generally represent a lower financial cost for issuers as compared to that in a less developed government securities market.

Likewise, a more developed securities market will provide to investors access to a broader range of possibilities to place their resources based in their own investment profiles. Usually, the opportunity for issuing debt instruments arises when government bonds are issued and, for this reason, the latter are considered as the center or origin of the fixed-income securities markets available in a country. The government yield curve [6] is the basis for creating the reference interest rate curve for other debt issues.

Government bonds also serve as underlying assets for various types of derivatives. From a macroeconomic perspective, a government debt market also allows financing budget deficits, helps to reduce government dependence on bank and foreign financing, and strengthens the monetary policy transmission channels.

This supports the development of the financial system in general from a system centered on bank financing to a multi-level system in which debt and capital markets complement financial intermediation. Among other organizations, the World Bank and the International Monetary Fund have set out the different elements that favor the development of debt markets. Besides having a credible and stable government as an issuer, the debt market must also be backed by sound fiscal and monetary policies, an adequate legal, tax and regulatory framework, a safe and efficient security settlement system, and an open financial system with competitive intermediaries.

To facilitate competition, actions must be taken to strengthen the disclosure of information, the surveillance and regulation of market participants, and to prevent abusive practices and any other action that threatens free competition. Domestic and foreign investors are reluctant to purchase government debt instruments, particularly those at mid and long terms, if there is a considerable credit risk, a restrictive regulatory framework, a complex and barely transparent fiscal regime, high inflation expectations or considerable volatility in exchange rates.

Preventing all the previous factors must go hand in hand with designing attractive instruments for an investor base with long term investment horizons the so-called buy-and-hold investors. In this way, the government can solve its long-term financing requirements. In general, an investor would rather not purchase instruments of a government which is perceived to have a high risk of default. The fact that inflation expectations are directly reflected in the nominal yield of government instruments limits governments from issuing debt not hedged against inflation, particularly when inflation expectations are considerably high particularly at medium and long terms.

When this happens, governments are forced to issue exclusively short-term instruments at floating or indexed-to-inflation rates. Additionally, the foreign exchange regime and restrictions to capital flows which frame the capital account policy also have an effect on the degree of development of debt markets in terms of their ability to attract foreign institutional investors with structural investment needs.

Finally, an important requirement is to have healthy financial intermediaries that can provide liquidity and efficiency to the debt market. A sufficiently liquid and developed money market, as the repo market, [11] is another factor that favors the development of long term instruments issued by the government.

A sound money market feedbacks the bond market by increasing its liquidity. In other words, it simplifies the process of covering short-term liquidity needs for financial institutions and therefore makes less risky and expensive to keep government securities. On the other hand, the way in which the central bank implements monetary policy has a significant influence on the structure and development of government debt markets.

For instance, the central bank may help foster the money market through its open market operations or prevent the fragmentation of a not-so-developed government debt market by placing the same instruments issued by the government for its monetary operations. Having an independent central bank that provides a credible nominal anchor such as an inflation target is fundamental for the development of debt markets.

To achieve this, monetary policy must first be formulated with a sufficient level of consistency. Second, a high level of coordination must prevail between the fiscal and monetary authorities, despite the fact that both have different economic policy objectives. Nonetheless, both authorities —as well as the debt market— will be interested in attaining their respective goals, because a monetary policy that it is not credible would affect the perception of investors regarding inflation and the risk of devaluation and, therefore, the cost of government financing.

Moreover, the monetary authority would not be able, in the long term, to curb inflationary expectations if the government faces a fiscal or funding problem of such magnitude as to represent risk of monetization and having the central bank financing the government. As discussed in the previous section, in the finance theory of investment portfolios, a risk-free rate is the yield rate of an investment that has no risk of loss originated by default in payment. Their debt issues represent the broad-government securities market.

The Ministry also coordinates the activities with other bodies of the federal public sector to determine their overall debt strategy, including the type of debt instruments placed, their maturities, and issue amounts and timing of placements, etc.

The IPAB was created and began operations in The institute is responsible for managing the debt resulting from the bank bailout originated by the crisis. However, when the cost of rescuing the bank sector became explicit, IPAB practically assumed the total cost of this resolution.

Besides serving as the financial broker for the Federal Government, Banco de México the central bank , is also a major participant in the debt market denominated in domestic currency.

However, between and , Banco de México issued its own monetary regulation bonds known as BREMs for the purpose of regulating liquidity in the money market and facilitating the conduct of monetary policy. These bonds where replaced by bondes D issued by the Federal Government [17] in August It is evident that the Federal Government is the main issuer of risk-free instruments in domestic currency.

As for Banco de México, the graph shows both the bonds issued on its behalf BREMs , and the government instruments placed by the central bank for monetary regulation purposes, i. The origin of the government bond market in Mexico dates back to , when the Federal Government issued cetes [18] for the first time. At the beginning, the number and amount of transactions was small, the term was very short, there was no secondary market, and the government used a considerable control to determine the yield in primary auctions —for example, allocating a smaller quantity of instruments than that announced at the auction.

The first issue of 1-year cetes took place in ; however, at times when financial markets became distressed, the government was capable of placing only 7-day cetes. As for the secondary market, [19] as Sidaoui explained, it began developing in , when the government allowed banks and brokerage firms to present bids in the public auctions of cetes. During this period, Banco de México gradually began to conduct monetary policy by withdrawing or injecting liquidity through the sale or purchase, respectively, of government bonds.

Currently, pension and mutual funds, as well as insurance companies, may also participate in primary auctions for government securities. As discussed previously, macroeconomic instability hinders the development of financial markets.

In turn, Chart 1. The other aspect of macroeconomic stability that had to be considered to allow a healthy development of the debt market was the fiscal front. Fiscal policy probably constitutes the foundations for building this market. Consequently, all along the s and s, the Federal Government embarked on a major adjustment of public finances in order to maintain the budgetary balance Chart 1.

As public finances improved, public sector borrowing requirements decreased which, in turn, allowed stabilizing the public debt balance first, and then reducing it as a percentage of GDP Chart 1. Despite the progress in the pursuit of macroeconomic stability, during Mexico underwent a severe twin crisis of its balance of payments and its banking system.

Also, having financial intermediation in Mexico being almost exclusively undertaken through banks, it certainly worked against the national economy. After this crisis, the need to carry out a thorough transformation of the debt market became evident, particularly for the Federal Government.

The strategy the government adopted, as of this time, consisted in decidedly attacking a series of factors that were limiting the growth of its debt market, focusing mainly, according to Jeanneau and Pérez-Verdía , on improving the conditions of demand for government debt and reforming the conditions of institutional investment, among others. The first condition was to consolidate the process of macroeconomic stabilization, which was supported by the fiscal and monetary policies adopted since the s.

It was essential to put public finances in a path of clear and perceptible sustainability after the fiscal cost of the bank rescue. A series of fiscal adjustment actions and reforms were undertaken. The public sector deficit was decidedly reduced previous Chart 1. The aforementioned strategy included considering both the total amount of public debt issued, and the exchange rate risk implicit in its denomination.

The consolidation of fiscal discipline has been a fundamental pillar for the development of the public debt market. In terms of monetary policy, macroeconomic stabilization involved the adoption of an inflation targeting framework in , with all its attributes in terms of accountability and communication. This strategy, based on the appropriate stance of monetary and fiscal policies, represented the possibility of reducing inflation significantly until a low and stable rate was achieved.

The adoption of a free-floating exchange rate at the end of was also a fundamental element for the change in macroeconomic policy. The Mexican exchange rate history had been based on fixed-type exchange rate scheme with adaptations; therefore, the new regime represented a radical change that allowed, for the first time, to show the benefits of having a free exchange rate market, in which the limited interventions by the Foreign Exchange Commission through the central bank are done on the basis of clear rules.

Within this context, since the exchange rate has evolved according to market forces, including a sharp adjustment during the international financial crisis of Among some of the elements of this strategy that have been implemented are the following:.

Improving the predictability and transparency of primary issuance. This is undoubtedly one of the most important elements of the strategy and is aimed at providing certainty to the market by accepting market conditions at the moment of allocating funds. One of the main steps towards predictability and transparency was taken in when the Federal Government openly gave away its right to determine the allocated interest rates in the primary auctions for its bonds.

Additionally, since , the government publishes an annual financing plan as a supplement to its quarterly announcements where both the intended amounts to place by type of instrument, as well as the specific auction calendar for the period are defined. Reducing the rollover risk by gradually increasing the maturity profile of government bonds.

Bonds with longer terms were therefore gradually placed: Reducing the interest rate risk for public finances. This involved trying to concentrate the greater possible quantity of fixed-rate bond issues instead of placing instruments with floating or adjustable rates indexed to inflation, for instance. In a yield curve there is a wide set of securities issued at different maturities.

Among the measures adopted to foster the government securities market is selecting only certain issues that will serve as benchmarks.

This is done by increasing the outstanding amount in circulation through a re-opening process for the purpose of building a critical outstanding amount.

However, it was not until when re-openings began to operate as a usual component of the public debt management strategy by having international financial institutions include benchmarks issues in debt indexes that are now replicated by many investors worldwide. Introducing a market makers scheme. Another critical element for the development of the government bond market in Mexico, designed to increase its liquidity, depth and healthy development, was the introduction of the market maker scheme in Market makers enjoy the option of purchasing from Banco de México government bonds at the last primary auction price and of borrowing any instrument of the government portfolio.

Issuing a zero-coupon bond yield curve. In order to meet the investment needs of a certain type of institutional investors interested in longer term bonds that only pay interest at maturity, Mexican financial authorities issued zero-coupon bonds by stripping certain bonos [25] and udibonos [26] issues in which the payment of the principal is stripped from that of coupons.

Introducing the swapping of instruments. As part of this strategy, and to prevent maturity dates of instruments with significant amounts outstanding to concentrate on certain dates, the government adopted a strategy of swapping instruments as of October Nevertheless, swapping has been used in certain cases merely to reinforce benchmark issues and to redistribute bond maturities in a more homogenous manner throughout the yield curve. Introducing structured debt instruments warrants.

As described by Sidaoui , the increasing presence of foreign investors encourages innovation in debt instruments such as warrants, i. Buying government securities in the secondary market. For the purpose of relieving the financial crisis and to maintain order in the public debt market, the Federal Government bought from April to December some of its instruments in the secondary market, at market prices, through transparent and clear programs.

In fact, these purchases were announced in advance and included fixed-rate bonos and both medium and long-term udibonos. Placing government securities through syndicated auctions. Finally, as of February , syndicated auctions for some issues of bonos and udibonos have taken place. In these auctions, government bonds may be sold to a group or syndicate of financial institutions that buy a specific volume of bonds at market prices for a fee. In this way, a broader investor base is reached, as compared to a traditional primary auction.

All the previous measures correspond mainly to the Federal Government in its role as an issuer or supplier of bonds. The other relevant arm for market development refers to fostering the demand for debt instruments. In this regard, the implementation of certain structural reforms also helped to set sound bases to support the growth of the demand for government instruments.

For example, eliminating restrictions to capital flows mobility in , and the previously discussed adoption of a free-floating exchange regime in , fostered the participation of foreign investors in the local debt market.

Similarly, the pension reform of , which modified the pension system from one based on defined benefits, to another based on defined contributions, worked as a fulcrum for debt market development. During the reform, private pension fund managers Afores, for its acronym in Spanish were created. Later, in , with the reform to the ISSSTE Law, which had a similar purpose in terms of public sector pensions, an additional boost was given to retirement savings.