LetsLearnFinance

BOND MARKET


The bond market which is popularly known as Debt market, Credit or Fixed Income market is a platform where there are market participants in the form of buyer and seller buying and selling debt securities which usually are in the form of bonds. Bond market is often used as reference with respect to Interest rate or the Yield Curve graph since there is an inverse relationship between interest rate and bond valuation. Bond market usually means Government bond market & Government backed ones because of its size, nature of liquidity, absence of credit risk and hence response to change of interest rate.

Data shows that international bond market size has been around $ 50 trillion in 2006/07, while the USA bond market debt outstanding amount around $26-$27 trillion. Estimated data as of early 2007 shows that daily trading volume in USA hovers around $900 billion, transactions largely occurs around among broker – Dealer and Institutional Participants which is otherwise termed over the counter (OTC) market.
Bond/ Debt markets are mainly decentralized and absences of certain exchanges like cash, future and commodity markets. This has occurred as no two bond issues are exactly alike, and the number of different outstanding securities is far larger.

Market Structure
Market participants are essentially either Buyers (debt issuer) of funds or sellers (institution) of funds or often both.
Categorizing Participants:-
• Institutional investors
• Governments
• Traders
• Individuals

Investment in Bond market
Financial Institutions or Investment companies allow individual investors to participate in the bond markets through bond funds, funds of closed-end variant and unit-investment trusts.
To brush through Bond market often we come across Primary market, secondary market.
The Primary market deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funds through bond issuance. The Secondary market refers to the stage where previously issued financial tools like stocks, securities, bonds, futures and options transactions take place. Dealers out here in this market are often referred to as Satellite Dealers and here new investors can purchase from other investors in the secondary market or the aftermarket.


Thanks,
Pamela