Bond Market

The bond market—often called the debt market, fixed-income market, or credit market—is the collective name given to all trades and issues of debt securities. Governments typically issue bonds in order to raise capital to pay down debts or fund infrastructural improvements.

Publicly traded companies issue bonds when they need to finance business expansion projects or maintain ongoing operations.

The bond market is broadly segmented into two different silos: the primary market and the secondary market. The primary market is frequently referred to as the “new issues” market in which transactions strictly occur directly between the bond issuers and the bond buyers. In essence, the primary market yields the creation of brand-new debt securities that have not previously been offered to the public.

In the secondary market, securities that have already been sold in the primary market are then bought and sold at later dates.2 Investors can purchase these bonds from a broker, who acts as an intermediary between the buying and selling parties. These secondary market issues may be packaged in the form of pension funds, mutual funds, and life insurance policies—among many other product structures. Bonds have been traded far longer than stocks have. In fact, loans that were assignable or transferrable to others appeared as early as ancient Mesopotamia, where debts denominated in units of grain weight could be exchanged among debtors. In fact, the recorded history of debt instruments dates back to 2400 B.C.—via a clay tablet discovered at Nippur, now present-day Iraq. This artifact records a guarantee for payment of grain and listed consequences if the debt was not repaid.

Later, in the middle ages, governments began issuing sovereign debts in order to fund wars. In fact, the Bank of England, the world’s oldest central bank still in existence, was established to raise money to rebuild the British navy in the 17th century through the issuance of bonds. The first U.S. Treasury bonds, too, were issued to help fund the military, first in the war of independence from the British crown, and again in the form of “Liberty Bonds” to help raise funds to fight World War I.

The corporate bond market is also quite old. Early chartered corporations such as the Dutch East India Company (VOC) and the Mississippi Company issued debt instruments before they issued stocks. 

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