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. What role does credit play in the economic boom and bust cycle?

    A great deal of economic literature has been written about the nature of economic cycles, and it has usually led to even ... Read Full Answer >>
  2. What factors are the primary drivers of share prices in the oil and gas sector?

    The primary drivers of share prices in the oil and gas sector are energy prices and economic growth. Stock prices in the ... Read Full Answer >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>
  7. 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 >>
  8. 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. Savings

    Explaining Term Deposits

    A term deposit (more often called a certificate of deposit or CD) is a deposit account that is made for a specific period of time.
  7. Fundamental Analysis

    Understanding the Profitability Index

    The profitability index (PI) is a modification of the net present value method of assessing an investment’s attractiveness.
  8. Economics

    What is Neoliberalism?

    Neoliberalism is a little-used term to describe an economy where the government has few, if any, controls on economic factors.
  9. Fundamental Analysis

    Explaining the Monte Carlo Simulation

    Monte Carlo simulation is an analysis done by running a number of different variables through a model in order to determine the different outcomes.
  10. Economics

    What's a Maturity Date?

    Maturity date is the final date when any remaining principal and any unpaid interest are due on a debt.

You May Also Like

Hot Definitions
  1. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  2. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  3. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  5. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  6. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!