Credit Market

AAA

DEFINITION of 'Credit Market'

1. The broad market for companies looking to raise funds through debt issuance. The credit market encompasses both investment-grade bonds and junk bonds, as well as short-term commercial paper.

2. The market for debt offerings as seen by investors of bonds, notes and securitized obligations such as mortgage pools and collateralized debt obligations (CDOs).

INVESTOPEDIA EXPLAINS 'Credit Market'

The credit markets dwarf the equity markets in terms of dollar value. As such, the current state of the credit markets tells us the relative health of a large portion of the financial community if we examine the prevailing interest rates and look at investor demand for various grades of credit - from "riskless" (as in Treasury Bonds) to junk bonds that carry high default risks. More demand from investors will prompt companies and lenders to issue more bonds, the effects of which will spill over into the equity markets.

There are broad classes of mutual funds and ETFs that invest solely in the credit markets, allowing investors to add fixed-income exposure to their portfolios without purchasing individual securities.

RELATED TERMS
  1. Interest Expense

    The cost incurred by an entity for borrowed funds. Interest expense ...
  2. European Credit Research Institute ...

    An independent research center founded by European credit institutions ...
  3. Bond Rating

    A grade given to bonds that indicates their credit quality. Private ...
  4. Investment Grade

    A rating that indicates that a municipal or corporate bond has ...
  5. Leveraged Buyout - LBO

    The acquisition of another company using a significant amount ...
  6. Credit

    1. A contractual agreement in which a borrower receives something ...
RELATED FAQS
  1. Which segment of the oil and gas sector is most vulnerable if oil prices drop?

    The segment of the oil and gas sector that is most vulnerable if oil prices drop is small-cap explorers and producers. These ... Read Full Answer >>
  2. How can a government balance the stimulating effects of increased spending with the ...

    In Keynesian macroeconomic theory, fiscal policy stimulus is most useful after liquidity constraints render monetary policy ... Read Full Answer >>
  3. How are net exports influenced by the crowding out effect?

    Net exports, the value of a country's exports minus the value of its imports, tend to be smaller when government deficits ... Read Full Answer >>
  4. What are "booms" and "busts" in the business cycle?

    In colloquial economic language, "booms" and "busts" refer to the major peaks and valleys of the business cycle. A boom is ... Read Full Answer >>
  5. If interest rate swaps are based on two companies' different outlook on interest ...

    Interest rate swaps are, at their core, a derivative instrument built on the premise of comparative advantage. To see how ... Read Full Answer >>
  6. When during the economic cycle does the financial services sector perform most strongly?

    The performance of the financial services sector is heavily dependent on the earnings of banks, and banks tend to perform ... Read Full Answer >>
Related Articles
  1. Credit & Loans

    Can't Get A Bank Loan? Turn To Your Neighbor

    Peer-to-peer lending can be an inexpensive way to gain access to credit when banks are restricting lending -- but you need to understand the entire deal first before jumping in.
  2. Bonds & Fixed Income

    Are High-Yield Bonds Too Risky?

    Despite their reputation, the debt securities known as "junk bonds" may actually reduce risk in your portfolio.
  3. Mutual Funds & ETFs

    The Bond Market: A Look Back

    Find out how fixed-income investments evolved in the past century and what it means today.
  4. Bonds & Fixed Income

    5 Signs Of A Credit Crisis

    These indicators can illuminate the depth and severity of problems in the credit markets.
  5. Investing

    Debt Reckoning

    Learn about debt ratios and how to use them to assess a company's financial health. You could save a lot of money!
  6. Bonds & Fixed Income

    How Are Zero-Coupon Municipal Bonds Taxed?

    What every investor needs to know about taxes and zero-coupon muni bonds.
  7. Trading Strategies

    How To Seek Out Winning Trades

    Hunt for new winners with carefully-drawn scanning filters and third party services.
  8. Professionals

    Alternatives Need More Education, Not Enforcement

    While disclosures and investor education need improvement, alternatives provide a valuable way to increase yield and hedge against declines.
  9. Mutual Funds & ETFs

    Top 4 ETFs That Will Help Diversify Your Portfolio

    Seeking low cost diversification to high quality stocks and bonds? Consider these 4 ETFs.
  10. Bonds & Fixed Income

    Muni Bonds, Taxable Bonds or CDs: Which is Best?

    Here's how to tell if municipal bonds are a better investment than taxable bonds or CDs.

You May Also Like

Hot Definitions
  1. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  2. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  3. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  4. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  5. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  6. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
Trading Center