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 of the Bond Market

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 Buyer 20

    Bond Buyer 20 is a representation of municipal bond trends based ...
  2. Term Bond

    Term bonds mature on a specific date in the future and the bond ...
  3. Government Bond

    A government bond is a debt security issued by a government to ...
  4. Bond Yield

    Bond yield is the amount of return an investor will realize on ...
  5. Bond ETF

    Bond ETFs are very much like bond mutual funds in that they hold ...
  6. Combination Bond

    Combination bonds are municipal bonds with financial backing ...
Related Articles
  1. Investing

    The Best Bet for Retirement Income: Bonds or Bond Funds?

    Retirees seeking income from their investments typically look into bonds. Here's a look at the types of bonds, bond funds and their pros and cons.
  2. Investing

    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.
  3. Investing

    Using U.S. Savings Bonds As a Long-term Investment

    A 20-year Series EE savings bond pays more interest than a 20-year Treasury bond. Government-issued long-term bonds might not always be the best choice.
  4. Investing

    5 Fixed Income Plays After the Fed Rate Increase

    Learn about various ways that you can adjust a fixed income investment portfolio to mitigate the potential negative effect of rising interest rates.
  5. Investing

    The Basics Of Municipal Bonds

    Investing in municipal bonds may offer a tax-free income stream, but such bonds are not without risks. Check out types of bonds and the risk factors of muni-bond.
  6. Investing

    An Introduction To Corporate Bond ETFs

    Learn about the pros and cons of these specialized ETFs, and get in on the opportunities they can provide.
  7. Investing

    Six biggest bond risks

    Bonds can be a great tool to generate income, but investors need to be aware of the pitfalls and risks of holding corporate and/or government securities.
RELATED FAQS
  1. What determines bond prices on 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 >>
Trading Center