Bond Markets: An Introduction
The bond market is divided into two parts: the primary market and the secondary market. The immediate market need is usually directed to the "new issues" market demand, in which transactions are strictly between the bond issuers and the bond purchasers. Essentially, the primary market results in the development of brand-new debt instruments that have never been issued to the public.
What Is the Bond Market?
The bond market, also comprehended as the debt market, fixed-income market, or credit market, refers to all exchanges and issuance of debt securities. Governments frequently issue bonds to obtain funds to pay down debts or support infrastructure investments—publicly listed firms issue bonds when they need to finance corporate development projects or maintain continuing operations.
Types of Bond Markets
Corporate Bonds
Government Bonds
Municipal Bonds
Mortgage-Backed Bonds (MBS)
Emerging Market Bonds
Bond Indices
Stock Market vs Bond Market
Bonds are distinct from stocks in various respects. Bonds are debt funding, whereas stocks are equity financing. Bonds are a type of credit in which the borrower (the bond issuer) must repay the bond owner's principal plus interest over time. Stocks do not entitle the shareholder to any capital return, nor do they have to pay interest (or dividends). Bonds are often less risky than stocks because of the legal safeguards and assurances in a bond specifying repayment to creditors, which attract lower projected returns than equities. Stocks are intrinsically more complex than bonds and have the potential for higher profits or losses.
Stock and bond markets are both quite active and liquid. On the other hand, bond prices are susceptible to changes in interest rates, moving inversely to interest rate movements. In contrast, stock values are more vulnerable to future profitability and growth potential changes.
