The bond market (also known as the debt, credit, or fixed income market) is a financial market where participants buy and sell debt securities, usually in the form of bonds.
You can classify the broader bond market into five specific bond markets:
- Corporate
- Government & Agency
- Municipal
- Mortgage Backed, Asset Backed, and Collateralized Debt Obligation
- Funding
A bond is a debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity.
A bond is simply a loan in the form of a security with different terminology:
- Borrower = ‘issuer’
- Lender = ‘bond holder’
- Interest payments = ‘coupon’
Bonds enable the issuer to finance long-term investments with external funds.
Bonds and stocks are both securities, but the major difference between the two is that stock-holders are the owners of the company (i.e., they have an equity stake), whereas bond-holders are lenders to the issuing company. Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks may be outstanding indefinitely.
