Training Document on the Us Bond Market

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Training Document on the Us Bond Market

By | Jan. 2007
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Training Document on the US Bond Market

Introduction

The US bond market is fairly easy to understand. Bonds are like loans that the government or corporations issue at a known interest rate for a certain amount of time. This interest rate is for the life of the bond and is paid out semi-annually to the bond holder. They are usually held for long periods of time, such as five years or more. The face value of the bond, which is the amount paid for the bond, is repaid to the bondholder according to the maturity date of the bond (the maturity date being the life of the bond or the set amount of time that the bond is set up for). People like to invest in bonds because they are generally low risk and interest rates are fairly easy to predict. But what important information do we need to know about bonds? There are a lot of main questions to answer about the basics of bonds. We will discuss these questions in the following training document to better understand the US Bond Market. What types of markets are there for bonds? Who are the key players in the bond market? What types of bond investments are available to the individual and to institutional investors? What are the different ways that bonds bought and sold? How are stocks and bonds related or different from one another? Once we have answered all of these questions, you should have a better grip on the basics of bonds. Bond Markets

There are two main markets for bonds. The first is called the primary market "in which new issues of securities are sold to the public" (Gitman & Joehnk, 2005, p. 36). This means that when the government or a corporation issues new bonds to sell to the public, they reap the profits from the sales of the bonds to fund government programs or corporate expansions or any other reason for which they might need the money.

The other is the secondary market, which is where the bonds can be re-issued by the corporation or the first issued bonds can be sold by current...

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