Bond Markets

The bond market, or the debt or credit market, is where participants issue and trade debt securities like bonds.

It has two key segments, made up of the primary market, where new bonds are issued, and the secondary market, where existing bonds are traded.

For example, a city government might issue municipal bonds in the primary market to fund a new bridge. Investors buy these bonds directly, providing capital to the city.

Later, these bonds are traded among investors in the secondary market, offering primary holders liquidity by allowing them to sell to other buyers before maturity.

Most bonds trade over-the-counter or OTC in a decentralized system without a central marketplace.

In OTC markets, bond prices are often set through private negotiations, leading to price variations between transactions.

U.S. corporate bond transparency improved by introducing TRACE regulations in two thousand two. TRACE requires dealers to report trade details, improving market transparency.

The bond market is a financial tool that allows governments and companies to raise funds while providing investors with a steady investment return.