The role of bond markets in finance

							A bond market is a segment of the capital market of interest bearing securities. The issued
securities may be resold in the secondary market. The trading volume of bonds on the
international bond market are nominal compared to the stock market which are much higher.

The government bond market dominates a great deal of activities in this domain due its
ernomous size, liquidity and lack of credit risk. The bond market is frequently applied to signal
variations in interest rates, this is mainly because of the inverse relationship between bond
valuation and interest rates,

Bonds were used since the early days, on top of the long-term refinancing, and procurement of
capital options, which came with short repayment periods.

The first liquid bond markets were in Amsterdam and London. And the founding of the United
East India Company in 1602 created the need for financing maritime trade to grow strong.

In those days international maritime trade was carried out mostly through medium bonds. The
Dutch capital market was the dominant force as the most important capital market until well into
the eighteenth century.

In the modern day, bond markets in a majority of countries are largely decentralized and do not
come with exchange offerings like stock, future and commodity markets.

Apart from other causes, the decentralized market structure of the corporate and municipal
bond markets, is dissimilar from the stock market structure, and tops with significantly higher
transaction charges and less liquidity.

Municipal bond trades are also considerably more pricey compared to similar sized equity
trades. This is attributed to the lack of price transparency in the bond markets, and also bond
trading costs decrease with credit quality and increase with instrument complexity.

Effective spreads in municipal bonds average about two percent of the price for retail size
trades of twenty thousands and about one percent for institutional trade size trades of two
hundred thousand dollars.

Fixed-interest securities can also be divided into securitized and unsecured instruments. Among
the titles are securitized individual documents and collection documents, title unsecured debt
include individual and collective debt loans and bonds. And the price of the bond is measured
by the indices.

The global bond market grew in the 1990s boosted by the expansion of the segment for
corporate bonds. The main markets are distinguished on paper in terms of economic
development ranging from the smaller industrialized countries to the developing countries or
emerging markets. These states often borrow in foreign currencies and must offer higher
interest rates to be in a position to secure their financial needs.