Bond Market

The term bond market has many different meanings, which include fixed income market and credit income market. It is a financial environment or market where individuals can apply for new debts which are most commonly known as primary market. Secondary market is the term used for debt securities to buy and sell. Such securities are typically in bond forms. The major target of bond markets is to offer a way for long standing private and public expenditure funding.

Typically, the bond market was greatly under the control of the US. However, today only forty four percent belongs to the United States. In 2009, the global bond market reached to a projected amount of eighty two trillion two billion dollars. According to the BIS (Bank of International Settlements), in the same year the United State’s bond market debt size amounted to thirty one trillion two hundred billion dollars. On the other hand, the SIFMA (Securities Industry and Financial Markets Association) stated that as of  the second quarter of 2011the US had bonds totally thirty five trillion and two hundred billion dollars.

In the United States bond market, almost all of its average trading volume ($822 billion) happens between huge institution in spread out OTC or over the counter market and broker dealers. Nonetheless, what is on the list of exchanges are primary corporate small bond quantity.

Bond market references typically imply the bond market of the government. This is because of the shortage of credit risks, liquidity, and size. Thus, it also implies a higher probability of interest rates. Due to the contrary relationship of interest rates and bond valuation, the bond market is frequently used to signify interest rate changes, changes in yield curve which is the cost of funding measure.

Bond Market Types

The SIFMA has classified the extensive bond market into five different types. This includes corporate bond market, government and agency, municipal, asset and mortgage backed and debt obligation collateralization, and funding.

Participants of the Bond Market

In a majority of financial markets, the participants of the bond market are quite similar. These are basically comprised of institutions or sellers of funds, debt issuers or buyers, and sometimes both sellers and buyers.

Bond market participants include governments, traders, institutional investors, and individuals.

Due to bond issue individuality and liquidity shortage in a lot of seller issues, most outstanding bond are apprehended by institutions such as banks, pension and mutual funds, and banks. Ten percent of the bond market is presently controlled by private paying individuals in the US.

Size of Bond Market

In 2010, there was an increase of five percent in the total outstanding amount on the worldwide bond market. It has soared to a record of ninety five trillion dollars. For the rest, local bonds have reached over seventy percent of the international and total bonds. The United States was the biggest market with over thirty nine percent of its total then succeeded by Japan with twenty percent. As a fraction of worldwide Gross Domestic Product, there was a 130% increase from 2008’s 119% in the bond market by 2010.

The significant increase means that during the commencement of 2010, it was pretty higher than the worldwide equity market. It market capitalization was over fifty trillion dollars. Because of the increase of government issuance, there was market growth ever since the beginning of economic slowdown. Government bonds had accounted for forty three percent of the outstanding value by 2010 from thirty nine percent a year before.

The remaining amount of global bonds has risen to three percent by 2010 to twenty eight trillion. As per total in 2009, there was a 35% down from the one trillion five hundred billion dollars issued. During the 2011 first quarter, there was a powerful tart with over a fifty billion dollar issuance. With regards to value, the United States leads with an outstanding value of twenty four percent followed by thirteen percent by the United Kingdom.

Market Size of US Bond

The SIFMA stated that the bond size of the United States over trillions amounting from different categories. The government has over 28% of bonds followed by mortgage related bonds that amounted to 26% and corporate binds with 24%. Municipal bonds comprise 9% while agency and asset backed bonds comprise 7% and 6% respectively.

It must be noted that the debts of the Federal Government which are SIFMA recognized are considerably lesser than the total amount of notes, bonds, and bills which are issued by the United States Treasury Department of some fourteen trillion four hundred billion dollars in one time. This amount is most likely to exclude debts such as those which are held by Social Security Trust and Federal Reserve.

Volatility of Bond Market

Bond owners can gather the coupon until it reaches maturity because volatility of the bond market is not that relevant. A pre determined schedule is the basis of when interests and principals are received.


Nonetheless, those participants who are buying and selling their bonds prior to bond maturation are most likely exposed to a lot of risks most especially alterations in rates of interest. If there is an increase of interest rate, the existing bond value increases because newer issues are paid lower. The basic concept of the volatility of the bond market is that alterations in prices of bonds are opposite to interest rate changes. Irregular rates of interest are included in the monetary policy of a country and volatility of bond market is a reaction to changes in the economy and monetary policies.

What contributes to the volatility of the market are the views of economists in economic indicators as opposed to the present data released. A strict agreement is seen in the prices of bonds and there is only a minimal movement of market prices when in line data is released. The bond market typically goes through a quick movement of prices as data are interpreted by participants once the agreement view differs from economic release. Ambiguity usually offers increased volatility prior and after there is an economic release which varies in impact and importance based on the business cycle stage of the economy.

Influence of the Bond Market

The price with regards to profit that borrowers must pay to get funding is determined by bond market. For example, in one significant instance when former President Bill Clinton tried to boost up the budget deficit of the United States during the nineties, it resulted to price decrease thus leading to yield increase. He was then pressured to have the strategy abandoned and keep a balance budget.

Investment of Bonds

Individual investors can join in bond markets because investment companies allow them to do so. They can do it through close ended funds, unit investment trusts, and bond funds. As of 2006, there was a ninety seven percent increase (from 2005’s $30.8 billion to 2006’s $60.8 billion. of net inflows of bond funds. ETFs or exchange traded funds are other ways of investing or trading directly in bond issues. Such securities permit investors the chance to go through huge starting and rising sizes of trading.

Indices of Bonds

Bond indices are present for the specific purpose of portfolio managing and performance measurement. This is the same as Russell Indexes for stocks and S&P 500. The most typical American Benchmarks are the Citigroup BIG, Merrill Lynch, and Barclays Capital Aggregate Bond Index. Most of these indicators are included in groups of wider indices which can be made use for global bond portfolio measurement.