Bond Market

What is the 'Bond Market'

The bond market – also called the debt market or credit market – is a financial market in which the participants are provided with the issuance and trading of debt securities. The bond market primarily includes government-issued securities and corporate debt securities, facilitating the transfer of capital from savers to the issuers or organizations requiring capital for government projects, business expansions and ongoing operations.

BREAKING DOWN 'Bond Market'

In the bond market, participants can issue new debt in the market called the primary market or trade debt securities in the market called the secondary market. These products are typically in the form of bonds, but they may also come in the form of bills and notes. The goal of the bond market is to provide long-term financial aid and funding for public and private projects and expenditures.

Participants

The participants of the bond market are nearly the same as the participants in other financial markets. In bond markets, the participants are either buyers of funds (that is, debt issuers) or sellers of funds (institutions). Participants include institutional investors, traders, governments and individuals who purchase products provided by large institutions. These projects may be in the form of pension funds, mutual funds and life insurance, among many other product types.

Types of Bond Markets

The general bond market can be classified into corporate bonds, government and agency bonds, municipal bonds, mortgage-backed bonds, asset-backed bonds, and collateralized debt obligations.

Corporate Bond

Corporations provide corporate bonds to raise money for different reasons, such as financing ongoing operations or expanding businesses. The term "corporate bond" is usually used for longer-term debt instruments that provide a maturity of at least one year.

Government Bonds

National governments issue government bonds and entice buyers by providing the face value on the agreed maturity date with periodic interest payments. This characteristic makes government bonds attractive for conservative investors.

Municipal Bonds

Local governments and their agencies, states, cities, special-purpose districts, public utility districts, school districts, publicly owned airports and seaports, and other government-owned entities issue municipal bonds to fund their projects.

Mortgage Bonds

Pooled mortgages on real estate properties provide mortgage bonds. Mortgage bonds are locked in by the pledge of particular assets. They pay monthly, quarterly or semi-annual interest.

Bond Indices

Just like the S&P 500 Index or Russell Indexes for equities, bond indices manage and measure bond portfolio performance. Big names include Barclays Capital Aggregate Bond Index, the Merrill Lynch Domestic Master and the Citigroup U.S. Broad Investment-Grade Bond Index. Many bond indices are members of broader indices that may be used to provide and measure the performances of global bond portfolios.

RELATED TERMS
  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Bond Fund

    A fund invested primarily in bonds and other debt instruments. ...
  3. Secured Bond

    A type of bond that is secured by the issuer's pledge of a specific ...
  4. Government Bond

    A debt security issued by a government to support government ...
  5. Term Bond

    Bonds from the same issue that share the same maturity dates. ...
  6. Dollar Price

    The percentage of par, or face value, at which a bond is quoted. ...
Related Articles
  1. Personal Finance

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  2. Financial Advisor

    Advising FAs: Explaining Bonds to a Client

    Most of us have borrowed money at some point in our lives, and just as people need money, so do companies and governments. Companies need funds to expand into new markets, while governments need ...
  3. Markets

    Explaining Government Bonds

    A government bond is a debt security a government issues.
  4. ETFs & Mutual Funds

    Why Muni Bonds and Bond Funds are Perfect Together

    Municipal bonds and bond funds differ in several ways, which is partly why they complement each other well.
  5. Managing Wealth

    Find The Right Bond At The Right Time

    Find out which bonds you should be investing in and when you should be buying them.
  6. ETFs & Mutual Funds

    The Top 5 Long-Term Bond Funds for 2016

    Understand how long-term bond mutual funds can benefit an investor's portfolio, and learn the best long-term bond mutual funds for 2016.
  7. Retirement

    How to Pick the Right Bonds For Your IRA

    Learn about the best types of bonds to include in an IRA depending on an investor's risk tolerance. Understand the tax benefits of holding bonds in an IRA.
  8. Trading

    Top 6 Uses For Bonds

    We break down the stodgy stereotype to see what these investments can do for you.
  9. Markets

    The Basics Of Municipal Bonds

    Investing in these bonds may offer a tax-free income stream but they are not without risks.
  10. ETFs & Mutual Funds

    Bonds

    What bonds are: Debt securities where you lend money to an issuer (e.g., a corporation or government) in exchange for interest payments and the future repayment of the bond’s face value. ...
RELATED FAQS
  1. What forms of debt security are available for the average investor?

    Discover the various different types of debt securities, issued by government entities or corporations, that are available ... Read Answer >>
  2. Why are simple-interest loans preferred by payday loan companies and pawn shops?

    Learn how you can invest in the corporate bond market without investing a large amount of capital through bond funds and ... Read Answer >>
  3. What do cities do with the funds generated from municipal bonds?

    Learn more about municipal bonds, including the various types of bonds issued and the purposes of municipal bond funds, such ... Read Answer >>
  4. What determines the price of a bond in the open market?

    Learn more about some of the factors that influence the valuation of bonds on the open market, and why bond prices and yields ... Read Answer >>
  5. Which factors most influence fixed income securities?

    Learn about the main factors that impact the price of fixed income securities, and understand the various types of risk associated ... Read Answer >>
  6. Who are the key players in the bond market?

    The bond market can essentially be broken down into three main groups: issuers, underwriters and purchasers. The issuers ... Read Answer >>
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center