The bond market (also debt market or credit market ) is a financial market where participants can issue new debt. known as the primary market. or buy and sell debt securities. known as the secondary market. This is usually in the form of bonds. but it may include notes, bills, and so on.

Its primary goal is to provide long-term funding for public and private expenditures. The bond market has largely been dominated by the United States, which accounts for about 44% of the market. [ 1 ] As of 2009, the size of the worldwide bond market (total debt outstanding) is an estimated at $82.2 trillion, [ 2 ] of which the size of the outstanding U.S. bond market debt was $31.2 trillion according to Bank for International Settlements (BIS), or alternatively $35.2 trillion as of Q2 2011 according to Securities Industry and Financial Markets Association (SIFMA). [ 2 ]

Nearly all of the average daily trading in the U.S. bond market takes place between broker-dealers and large institutions in a decentralized over-the-counter (OTC) market. [ 3 ] However, a small number of bonds, primarily corporate ones, are listed on exchanges .

An important part of the bond market is the government bond market, because of its size and liquidity. Government bonds are often used to compare other bonds to measure credit risk. Because of the inverse relationship between bond valuation and interest rates, the bond market is often used to indicate changes in interest rates or the shape of the yield curve. the measure of cost of funding.

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Types of bond markets [ edit ]

The Securities Industry and Financial Markets Association (SIFMA) classifies the broader bond market into five specific bond markets.

Bond market participants [ edit ]

Bond market participants are similar to participants in most financial markets and are essentially either buyers (debt issuer) of funds or sellers (institution) of funds and often both.

Participants include:

Because of the specificity of individual bond issues, and the lack of liquidity in many smaller issues, the majority of outstanding bonds are held by institutions like pension funds. banks and mutual funds. In the United States. approximately 10% of the market is held by private individuals.

Bond market size [ edit ]

Amounts outstanding on the global bond market increased by 2% in the twelve months to March 2012 to nearly $100 trillion. Domestic bonds accounted for 70% of the total and international bonds for the remainder. The United States was the largest market with 33% of the total followed by Japan (14%). As a proportion of global GDP, the bond market increased to over 140% in 2011 from 119% in 2008 and 80% a decade earlier. The considerable growth means that in March 2012 it was much larger than the global equity market which had a market capitalisation of around $53 trillion. Growth of the market since the start of the economic slowdown was largely a result of an increase in issuance by governments.

The outstanding value of international bonds increased by 2% in 2011 to $30 trillion. The $1.2 trillion issued during the year was down by around a fifth on the previous year’s total. The first half of 2012 was off to a strong start with issuance of over $800 billion. The United States was the leading center in terms of value outstanding with 24% of the total followed by the UK 13%. [ 4 ]

U.S. bond market size [ edit ]