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Debt Capital Market (DCM)

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What Does Debt Capital Market (DCM) Mean?

A debt capital market (DCM), also known as a fixed income market, is a market for trading debt securities such as bonds and loans. Like equity markets, debt capital markets are used by businesses and governments to raise long-term funds that could go towards growth or maintenance.

The main difference between debt and equity markets is that those who purchase equity are owners whereas those who purchase bonds are lenders who are only entitled to a fixed interest rate.

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Divestopedia Explains Debt Capital Market (DCM)

The debt capital market is an important component of the international financial market. Although it is applicable to all markets where debt is traded, it can be broadly divided into primary and secondary markets. The primary market is where a borrower launches a new bond issue to raise funds from investors directly, while the secondary market is where existing bonds are traded among different entities such as investment managers, hedge fund owners, governments and other commercial organizations. One common aspect of all securities traded in both markets is that they are for a fixed term, although the rates of interest can be fixed or variable.

Most organizations looking to raise money through debt do not trade directly in the primary market. Instead, they approach an investment bank that specializes in debt capital management to help them with new bond issues. This process is known as origination, and the investment bank that is involved in this process is called the originator. In return for this service, the investment bank will charge a certain amount of money as its fee. In addition, the investment bank may also make money by selling the services that are associated with this bond issue such as cross currency swaps.

In the case of the secondary market, debt is bought and sold without any intermediaries. One of the most prominent types of securities transacted are government bonds. These bonds are used by the government to raise money from the public for its development projects.

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