The bond market is a cornerstone of the global financial system, facilitating the issuance and trading of debt securities by governments, corporations, and...
A bond is a debt instrument where an investor lends money to an entity (like a government or corporation) that promises to pay interest over a specified period and return the principal amount at maturity.
In the bond market, issuers sell bonds to raise capital. Investors buy these bonds, receiving fixed or variable interest payments, and the original principal when the bond matures. Bond prices and yields fluctuate based on market demand and interest rate changes.
Key factors include interest rate changes (inversely related), the issuer's credit quality, inflation expectations, and overall economic conditions. Stronger economies or lower interest rates often lead to higher bond prices.
Bond yield represents the return an investor receives from a bond, expressed as a percentage. It can be calculated in various ways, such as current yield or yield-to-maturity, reflecting the income relative to the bond's price.
Main participants include governments (issuing sovereign bonds), corporations (issuing corporate bonds), financial institutions, central banks, and a diverse range of investors from individual retail buyers to large institutional funds.