The bond market is a part of the capital market. It is divided in two different types known as the primary bond market and the secondary bond market. The primary bond market is also termed as debt market, credit market and fixed income market.
In the primary bond market, the companies or the government offer the new bonds and the fund generated through the process goes to the issuer of the bond.The total size of the global bond market is about $45 trillion. The United States of America shares a major portion of the global bond market revenue.
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There is a certain process of offering these bonds for the first time in the primary bond market. The process of offering bonds to the public are similar to the offering of the stock. For the purpose of offering bond in the primary market, a company or a firm needs to take help of an investment bank.
The investment bank provides all the necessary experience and expertise for the purpose. The investment bank provides its suggestions regarding the creation of the issue.
At the same time, the bank also provides an estimate of the expected yield from the issue. The maturity period of the bond is also suggested by these banks. The bank also helps in selling the bonds in the primary bond market. At the same time, the bank may also purchase the whole issue through firm commitment underwriting.
For the marketing of the new issue in the primary bond market, the investment bank uses its own network. The bank forms a syndicate or at certain times, forms a selling group, to sell the bonds to the investors through the primary bond market. The institutional investors or the individual investors lends their money to the particular company through these bonds. Once these are purchased from the primary bond market, these can be further traded in the secondary bond market.
These bonds provide a fixed income source to the investor. At the same time, the offering companies or the government also gets the very necessary money for their projects.
Last Updated on : 21st July 2016