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. Mutual Funds & ETFs

    ETF Analysis: Market Vectors Pharmaceutical

    Read about one of the best-performing ETFs in the health care sector since 2012: the Market Vectors Pharmaceutical ETF (PPH) by Van Eck Associates.
  7. Fundamental Analysis

    20-Year Treasury Bond ETF Trading Strategies

    iShares 20-Year Treasury Bond ETF offers a highly liquid equity alternative to direct bond exposure.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares FTSE/Xinhua China 25

    Learn about iShares FTSE/Xinhua China 25 and its asset allocation and how investing in this fund comes with heightened risks of emerging market risk.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Germany

    Learn about iShares MSCI Germany, which is a nondiversified exchange traded fund that invests principally in large-cap German companies.
  10. Mutual Funds & ETFs

    ETF Analysis: ProShares Short MidCap400

    Discover the benefits and drawbacks of the ProShares Short MidCap400 ETF, and learn which investors are best suited for the fund's investment strategy.

You May Also Like

Hot Definitions
  1. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  2. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  3. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  4. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  5. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  6. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
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!