What is the Bond Market? Definition and Overview
The bond market (also known as the debt market or credit market) is a financial market in which bonds are traded before they reach maturity.
The bond market has two components:
- The primary market where participants can issue new debt (as debt securities issued and sold by borrowers to lenders)
- The secondary market where investors buy and sell previously issued debt securities amongst themselves.
Image source: Pixabay
Even though the stock market often garners more attention from the media …….
……. the bond market is actually much bigger.
Economic Importance of the Bond Market
The bond market aids the transfer of capital from savers to the issuers seeking capital for ongoing operations, projects and expansions.
It is vital to the continued functioning of the public and private sectors, and it principally includes corporate debt securities and government-issued securities.
How the Bond Market Fluctuates – the Rise and Fall of Bond Values
The value of a bond has an inverse relationship to its interest rate.
In other words, the bond market is said to be “up” when interest rates decline, as the value of bonds already issued will rise.
Conversely, the bond market is “down” when a rise in interest rates lowers the value of bonds.
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