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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.


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

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.