The bond market is for participants that are involved in the issuance and trading of debt securities. It primarily includes government-issued and corporate debt securities, and 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, China and Japan are major holders of U.S. government debt.