Who are the key players in the bond market?

By Chad Langager AAA
A:

The bond market can essentially be broken down into three main groups: issuers, underwriters and purchasers.

The issuers sell bonds or other debt instruments in the bond market to fund the operations of their organizations. This area of the market is mostly made up of governments, banks and corporations. The biggest of these issuers is the government, which uses the bond market to fund a country's operations, such as social programs and other necessary expenses. The government segment also includes some of its agencies such as Fannie Mae, which offers mortgage-backed securities. Banks are also key issuers in the bond market and they can range from local banks up to supranational banks such as the European Investment Bank, which issues debt in the bond market. The final major issuer is the corporate bond market, which issues debt to finance corporate operations.

The underwriting segment of the bond market is traditionally made up of investment banks and other financial institutions that help the issuer to sell the bonds in the market. In general, selling debt is not as easy as just taking it to the market. In most cases, millions - if not billions - of dollars are being transacted in one offering. As a result, a lot of work needs to be done - such as creating a prospectus and other legal documents - in order to sell the issue. In general, the need for underwriters is greatest for the corporate debt market because there are more risks associated with this type of debt.

The final players in the market are those who buy the debt that is being issued in the market. They basically include every group mentioned as well as any other type of investor, including the individual. Governments play one of the largest roles in the market because they borrow and lend money to other governments and banks. Furthermore, governments often purchase debt from other countries if they have excess reserves of that country's money as a result of trade between countries. For example, Japan is a major holder of U.S. government debt.

To read more, see Corporate Bonds: An Introduction To Credit Risk, The Basics Of Federal Bond Issues and Bond Basics.

RELATED FAQS

  1. What does market segmentation theory assume about interest rates?

    Learn about how the market segmentation theory for different maturities of interest rates seeks to describe the shape of ...
  2. What are the advantages of using an effective interest rate figure?

    Understand what is meant by the effective interest rate, and learn why the effective rate calculation is preferred over the ...
  3. What are the pros and cons of operating on a balanced-budget?

    Take a brief look at some of the major arguments for and against balanced budgets for the U.S. government, the largest debtor ...
  4. What are the risks associated with investing in a treasury bond?

    Read about the risks of investing in risk-free U.S. Treasury bonds, including interest rate risk, inflation risk and opportunity ...
RELATED TERMS
  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  3. Bulldog Market

    A nickname for the foreign bond market of the United Kingdom. ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt ...
  5. Float Shrink

    A reduction in the number of a publicly traded company’s shares ...
  6. Capital Strike

    A refusal of businesses to invest in a particular sector of the ...

You May Also Like

Related Articles
  1. Active Trading Fundamentals

    What does market segmentation theory ...

  2. Mutual Funds & ETFs

    Pros & Cons Of Bond Funds Vs. Bond ETFs

  3. Bonds & Fixed Income

    African Sovereign Debt: Risks and Rewards

  4. Mutual Funds & ETFs

    Is HYG a Smart High Yield Corporate ...

  5. Fundamental Analysis

    What are some examples of Cash Flow ...

Trading Center