Debt (Government, Corporate, & Banks). Daniela Ramírez | Karla Castro

Bank bonds

Features

Purpose

Promissory Notes

Definition

Features

Raise capital for banks.

Short-term instruments where the bank promises to pay a fixed sum

Issued by banks; can be traded on the stock market.

Includes periodic returns (coupons) that can be cashed or traded.

Lower risk and lower returns; ideal for conservative investors.

Backed by the issuing bank's assets.

Fixed interest rate (PRV) and yields payable at maturity

Flexibility

Are regulated by the National Banking and Securities Commission (CNBV).

Terms from 7 to 360 days

Investment starts at $100,000, with renewals as low as $2,000

No early withdrawal; possible to take loans under favorable conditions

Investors can trade bonds for liquidity before maturity.

Commercial Paper

Definition

Short-term negotiable credit issued by companies to finance working capital.

Security: Backed by the Institute for the Protection of Bank Savings (IPAB)

Features

Higher returns due to higher risk.

Unsecured, based on company financial strength.

Risk

El Reporto

Evaluating the issuer is critical due to lack of collateral.

Bankers’ Acceptances (BAs)

Definition

Parties

Reportador/Lender

Bills of exchange issued by companies and accepted by banks.

Reportado/borrower

Types

Buys credit titles for a specific period, expects payment plus premium

Private

Public

Not traded on exchanges

Temporarily transfers ownership of credit titles in exchange for funds

Registered with national securities registry, available to wider investors.

Nature

Purpose

A real contract that blends loan and buy-sell elements

Duration

Used primarily for company financing, often linked to foreign trade

Typically up to 45 days and contract can be renewed

Features

No direct interest; profit through negotiation discounts.

Outcome

Secured by company assets.

Historical context

Borrower repays principal and premium, or lender retains credit titles if not repaid

Popular in the 1970s-80s, declined in the 1990s.

Summary

Certificates of Deposit (CDs)

Definition

Agreements where a depositor places funds with a bank for a fixed period in return for a predetermined interest rate

Bank Bonds: Long-term, low-risk.

Features

Promissory Notes: Short-term, secure, backed by IPAB.

Guaranteed Returns

Terms

Security

Often insured by institutions like the FDIC

Typically range from one month to several years

Fixed interest rates offer predictability

Commercial Paper: Short-term, higher risk but higher returns.

Certificates of Deposit (CDs): Fixed terms, secure, predictable returns.

Drawbacks

El Reporto: Short-term financing contract, blending loans and buy-sell features.

Early withdrawals usually incur penalties, making them less flexible than savings accounts

Bankers’ Acceptances: Bills of exchange, historically significant for trade finance.