Among a number of markets that we have heard and seen, Bond Market is a different but very influential markets for economies of respective countries. In bond markets, participants or traders buy and sell debt securities, in the form of bonds. First let me explain what debt securities mean. Debt security is a negotiable entity which represent a financial value. I’m sure there is another question remaining: what does it mean by bond? Bond is a debt security where the authorized issuer (usually a finance institution) owes the holder a debt and is obliged to pay the principle and the interest applicable for the principle at an agreed rate on a later date (maturity date).
If we talk about statistics, as of 2006, the size of the international bond market is estimated as $45 trillion and the
There are five main types of bond markets: Corporate, Government and Agency, Municipal, Mortgage Backed - Asset Backed - Collateralized Obligation and Funding. The differences between the five types are basically the the assets used, participants and the nature of the business. When it comes to participants, bond market acts as the same as any stock market out there. Bond market has sellers and buyers. There are four main categories of participants: Institutional investors, Governments, Traders and Individuals. Unlike stock market, individuals own very little of the bond market. Majority of the bonds are owned by institutional investors such as mutual funds, banks and pension funds.
For measuring bond market performance, there are many indices: Lehman Aggregate, Citigroup BIG and Merrill Lynch Domestic Meter are three of the important ones.