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Information about Bond Market

Financial markets
Bond market
Fixed income
Corporate bond
Government bond
Municipal bond
Bond valuation
High-yield debt
Stock market
Stock
Preferred stock
Common stock
Stock exchange
Foreign exchange market
Retail forex
Derivative market
Credit derivative
Hybrid security
Options
Futures
Forwards
Swaps
Other Markets
Commodity market
OTC market
Real estate market
Spot market
Finance series
Financial market
Financial market participants
Corporate finance
Personal finance
Public finance
Banks and Banking
Financial regulation
The bond market, also known as the debt, credit, or fixed income market, is a financial market where participants buy and sell debt securities usually in the form of bonds. The size of the international bond market is an estimated $45 trillion of which the size of outstanding U.S. bond market debt is $25.2 trillion. [1]

Nearly all of the $923 billion average daily trading volume in the U.S. Bond Market [2] takes place between broker-dealers and large institutions in a decentralized, over-the-counter (OTC) market. However, a small number of bonds, mainly corporate, are listed on exchanges.

References to the "bond market" usually refer to the government bond market because of its size, liquidity, lack of credit risk and therefore, sensitivity to interest rates. Because of the inverse relationship between bond valuation and interest rates, the bond market is often used to indicate changes in interest rates or the shape of the yield curve.

Market structure

Bond markets in most countries remain decentralized and lack common exchanges like stock, future and commodity markets. This has occurred, in part, because no two bond issues are exactly alike, and the number of different securities outstanding is far larger.

However, the New York Stock Exchange (NYSE) is the largest centralized bond market, representing mostly corporate bonds. The NYSE migrated from the Automated Bond System (ABS) to the NYSE Bonds trading system in April 2007 and expects the number of traded issues to increase from 1000 to 6000. [3]

Types of bond markets

The Securities Industry and Financial Markets Association classifies the broader bond market into five specific bond markets.
  • Corporate
  • Government & Agency
  • Municipal
  • Mortgage Backed, Asset Backed, and Collateralized Debt Obligation
  • Funding

Bond market participants

Bond market participants are similar to participants in most financial markets and are essentially either buyers (debt issuer) of funds or sellers (institution) of funds and often both.

Participants include: Because of the specificity of individual bond issues, and the lack of liquidity in many smaller issues, the majority of outstanding bonds are held by institutions like pension funds, banks and mutual funds. In the United States, approximately 10% of the market is currently held by private individuals.

Bond market volatility

For market participants who own a bond, collect the coupon and hold it to maturity, market volatility is irrelevant; principal and interest are received according to a pre-determined schedule.

But participants who buy and sell bonds before maturity are exposed to many risks, most importantly changes in interest rates. When interest rates increase (decrease), the value of existing bonds fall (rise), since new issues pay a higher (lower) yield. This is the fundamental concept of bond market volatility: changes in bond prices are inverse to changes in interest rates. Fluctuating interest rates are part of a country's monetary policy and bond market volatility is a response to expected monetary policy and economic changes.

Economist's consensus views of economic indicators versus actual released data contribute to market volatility. A tight consensus is generally reflected in bond prices and there is little price movement in the market after the release of "in-line" data. If the economic release differs from the consensus view the market usually undergoes rapid price movement as participants interpret the data. Uncertainty (as measured by a wide consensus) generally brings more volatility before and after an economic release. Economic releases vary in importance and impact depending on where the economy is in the business cycle.

Bond investments

Investment companies allow individual investors the ability to participate in the bond markets through bond funds, closed-end funds and unit-investment trusts. In 2006 total bond fund net inflows increased 97% from $30.8 billion in 2005 to $60.8 billion in 2006. [4] Exchange-traded funds (ETFs) are another alternative to trading or investing directly in a bond issue. These securities allow individual investors the ability to overcome large initial and incremental trading sizes.

Bond indices

Main article: Bond market index
A number of bond indices exist for the purposes of managing portfolios and measuring performance, similar to the S&P 500 or Russell Indexes for stocks. The most common American benchmarks are the Lehman Aggregate, Citigroup BIG and Merrill Lynch Domestic Master. Most indices are parts of families of broader indices that can be used to measure global bond portfolios, or may be further subdivided by maturity and/or sector for managing specialized portfolios.

See also

Notes

1. ^ Outstanding U.S. Bond Market Debt Bond Market Association. Accessed November 13, 2006.
2. ^ Avg Daily Trading Volume SIFMA 2005 Average Daily Trading Volume. Accessed February 19, 2007.
3. ^ NYSE Bonds press release NYSE Bonds. Accessed May 1, 2007.
4. ^ Bond fund flows SIFMA. Accessed April 30, 2007.

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 Bond market  
Fixed income | Bond | Debenture
Types of Bonds
By Issuer:Government bond | Sovereign bond | Agency bond
colspan="2" | Municipal bond | Corporate bond | Emerging market debt
By Payout:Fixed rate bond | Floating rate note | Zero coupon bond
colspan="2" | Inflation-indexed bond | Commercial paper | Accrual bond
colspan="2" | Auction rate security | High-yield debt | Convertible bond
colspan="2" | Mortgage-backed security | Asset-backed security
Derivatives
Bond option | Credit derivative | Credit default swap
Collateralized debt obligation | Collateralized mortgage obligation
Bond valuation
Pricing:Par value | Coupon | Clean price | Dirty price
colspan="2" | Accrued interest | Day count convention
Yield analysis:Nominal yield | Current yield | Yield to maturity
colspan="2" | Yield curve | Bond duration | Bond convexity
Credit analysis:Credit analysis | Credit risk
Spread analysis:Yield spread | Credit spread | Option adjusted spread
Interest rate models:Short rate models | Rendleman-Bartter | Vasicek
colspan="2" | Ho-Lee | Hull-White | Cox-Ingersoll-Ross | Chen
colspan="2" | Heath-Jarrow-Morton | Black-Derman-Toy
In economics, a financial market is a mechanism that allows people to easily buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other fungible items of value at low transaction costs and at prices
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worldwide view.
Fixed income refers to any type of investment that yields a regular (or fixed) return.

For example, if you borrow money and have to pay interest once a month, you have issued a fixed-income security.
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A corporate bond is a bond issued by a corporation. The term is usually applied to longer-term debt instruments, generally with a maturity date falling at least a year after their issue date. (The term "commercial paper" is sometimes used for instruments with a shorter maturity.
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A government bond is a bond issued by a national government denominated in the country's own currency. Bonds issued by national governments in foreign currencies are normally referred to as sovereign bonds.
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In the United States, a municipal bond (or muni) is a bond issued by a state, city or other local government, or their agencies. Potential issuers of municipal bonds include cities, counties, redevelopment agencies, school districts, publicly owned airports and seaports,
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Bond valuation is the process of determining the fair price of a bond. As with any security or capital investment, the fair value of a bond is the present value of the stream of cash flows it is expected to generate.
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In finance, a high yield bond (non-investment grade bond, speculative grade bond or junk bond) is a bond that is rated below investment grade at the time of purchase.
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A stock market is a market for the trading of company stock, and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately.
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In financial markets, the stock capital of a corporation or a joint-stock company is the capital raised through the issuance, sale and distribution of shares. A person or organization that holds at least a partial share of stock is called a shareholder.
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Preferred stock, also called preferred shares or preference shares, is typically a higher ranking stock than common stock, and its terms are negotiated between the corporation and the investor.
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A stock exchange, share market or bourse is a corporation or mutual organization which provides facilities for stock brokers and traders, to trade company stocks and other securities.
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The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest financial market in the world, and includes trading between large banks, central banks, currency speculators,
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The Retail forex (Retail Currency Trading or Retail Forex or Retail FX) market is a subset of the larger Foreign exchange market.

History

Retail trading is more structured than the forex market as a whole.
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The derivatives markets are the financial markets for derivatives. The market can be divided into two, that for exchange traded derivatives and that for over-the-counter derivatives.
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In finance, a credit derivative is a financial instrument or derivative whose price and value derives from the creditworthiness of the obligations of a third party, which is isolated and traded.
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    Returns: Predictable dividend, often franked therefore possible tax advantage to the holder
  • Capital price:
*Price moves in line with share price (fixed conversion terms e.g.

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Options are financial instruments that convey the right, but not the obligation, to engage in a future transaction on some underlying security. For example, buying a call option provides the right to buy a specified quantity of a security at a set strike price at some time on or
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In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price. The future date is called the delivery date or final settlement date.
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A forward contract is an agreement between two parties to buy or sell an asset (which can be of any kind) at a pre-agreed future point in time. Therefore, the trade date and delivery date are separated.
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swap is a derivative in which two counterparties agree to exchange one stream of cash flows against another stream. These streams are called the legs of the swap.
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Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts.
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Over-the-counter (OTC) trading is to trade financial instruments such as stocks, bonds, commodities or derivatives directly between two parties. It is the opposite of exchange trading which occurs on futures exchanges or stock exchanges.
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Property law
Part of the common law series
Acquisition of property
Gift  · Adverse possession  · Deed
Lost, mislaid, and abandoned property
Alienation  · Bailment  · License
Estates in land
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The Spot Market or Cash Market is a commodities or securities market in which goods are sold for cash and delivered immediately. Contracts bought and sold on these markets are immediately effective.
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Finance studies and addresses the ways in which individuals, businesses, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects.
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In economics, a financial market is a mechanism that allows people to easily buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other fungible items of value at low transaction costs and at prices
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financial market participant categories, Investor vs. Speculator and Institutional vs. Retail. Action in financial market by Central banks is usually regarded as intervention rather than participation, although evidence exists in the Sprott '"Visible Hand of Uncle Sam"' report that
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Corporate finance is an area of finance dealing with the financial decisions corporations make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to enhance corporate value while reducing the firm's financial risks.
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Personal finance is the application of the principles of finance to the monetary decisions of an individual or family unit. It addresses the ways in which individuals or families obtain, budget, save and spend monetary resources over time, taking into account various financial
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Economic policy
Monetary policy
Central bank   Money supply
Fiscal policy
Spending   Deficit   Debt
Trade policy
Tariff   Trade agreement

Finance
Financial market
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