What is a bond market?

What Is a Bond Market?

• Answer:

  All bonds, regardless of type, trade on the bond market. The bond market is vast, and the United States bond market accounts for more than half of the global market. Bonds are considered to be a much less risky investment than stocks, and government bonds are even classified as risk-free. Bond Market The arena in which investors buy and sell all bonds is the bond market. Most bonds are traded directly between brokers on the over-the-counter market. Size The size of the global bond market is $45 trillion, and the United States bond market makes up $25.2 trillion of that total. Bonds A bond is an investment vehicle that is issued in order to raise money for some specific purpose, and is considered to be debt by the issuer. The principal and interest must be repaid to the investor on the bond's maturity date. Investing Since most bonds are not traded on a major exchange, the primary investors are large institutional investors who readily have access to the direct broker-broker relationships needed to trade bonds. For the individual investor, the easiest and most efficient way to invest in bonds is through a bond fund or a bond ETF; these can be easily purchased through any online trading account. Types There are five main bond market categories under which all bonds fall: Government/Agency, Municipal, Corporate, Mortgage Backed and Funding. Volatility The market forces that bonds are most affected by are interest rates. As interest rates rise, bond prices fall; as rates fall, prices rise.