What is the Bond Market?

You might not know it, but the Bond Market is about twice the size of the Stock Market.

It’s true; in the US and internationally, the bond market, which includes municipal bonds, corporate bonds, government bonds, v, etc, has almost twice the amount invested in it than the Stock Market. Within these categories, there are many subsets. Bonds are widely used by individual investors as well as corporations and governments.

Perhaps because of their more predictable nature, they form the backbone of the portfolio at most large institutions. Because they are a means to borrow money and to pay interest that may be lower than that offered by banking institutions, or to borrow more than banking institutions might approve, has made them an extremely popular and essential tool for corporations and governments.

When a new school needs to be built, or improvements to the airport need to be made, or a new toll road needs to be built, the most popular source of funding is the issuance of bonds. Then, much like equity derivatives, the cash flows, risk, and interest of bonds are bought and sold, pooled, securitized, tranched, etc, in markets and products which have sprouted from the outskirts of the primary and secondary bond markets.

They are an important part of a retirement income portfolio. They are also used in the portfolios of mutual funds, pension funds, and hedge funds as well. Bonds do not have to be the boring traditional instruments with low returns. In fact, some are highly speculative and can offer returns that beat the market.

Is There Anything Else I Need to Know About Bonds?
How Do I Structure My Bond Portfolio?
What are Some Strategies for Diversifying a Portfolio?