The secondary bond markets play a marketplace for the bonds that are already issued in the primary market. The secondary debt market deals with the debts and hence is also known as the debt or credit market. The secondary bonds market handles the reselling of bonds by investors.
The money that is paid for bonds in the secondary market goes to other investors but not to the issuers. On the other hand in case of the primary market the money paid by the investors goes directly to the issuer companies. When the investors purchase bonds, they can either hold it until its maturity date.
The investor can thus receive regular interest payments and the principal as well at its maturity. On the other hand, the investor can also sell it before the maturity date in the secondary bond market. The new owner of the bond now will be eligible to receive the regular interest payments and also the principal at the end of bond’s maturity period.
The resale value of a bond in the secondary markets differs from that of the face value. The resale value of the bond is based on the interest rate of the day when the transaction is carried out. With the rise or fall of the interest rate, the value of bond also rises or falls accordingly.
Trading in the secondary bond market is important for both the capital market and economy. Hence it is necessary that the secondary market be highly transparent and liquid in nature.
The corporations, governments and companies issue bonds and stocks in the capital market in order to collect fund. But it is primary bond market from where the companies can collect the fund. The money collected from the selling bonds in primary market goes directly to the company. But in case of the secondary market, an investor or speculator sells the bonds and the money goes to another investor in stead of the company. The secondary bond market trend gives idea about the market liquidity of a particular bond. The investor can either hold the bond for a long period of time or sell it after a short period of time. But it has been seen that the investors are not very interested to invest in the long-term bonds.
Last Updated on : 5th July 2013