Us Bond Market

The purpose of this training document is to familiarize new employees with the U.S. Bond Market. Once the training is complete, employees new to our company will have a better understanding of what the US Bond Market is comprised of concerning the key players, types of investments for both individual and institutional investors, how transactions are performed, and whether or not there is any relation between the US Bond Market and the stock markets.

We begin by taking at look at the key players who make the US Bond Market tick. There are three main players which are issuers, underwriters, and finally, purchasers. The issuers are usually governments, banks, or corporations. The issuers are, in the Bond Market, considered to be the sellers. Governments are usually the largest of the issuers, and their bonds help fund the country’s operations, whereas banks issue out all debt in bond markets, and corporate operations are funded by the corporation issuing debt through bonds. So, the issuers have bonds to sell, but need an entity to ensure proper transaction, and that is where the underwriters come into play. (Who are the key players in the bond market?, 2008)

Underwriters are simply the “middle-man”, and are made up of investment banks and other financial institutions. The underwriters are there to assist the issuers with selling their bonds. They ensure that everything is completed and correct, including all legal documentation, before a transaction takes place. Due to the fact that there are usually millions of dollars involved in a single transaction, the role of the underwriters is highly important. Once all the “T’s” are crossed and the “I’s” dotted, the transaction goes into its final phase with the purchasers. Basically, the purchasers group is comprised of anyone who buys the debts that have been issued by the aforementioned issuers. (Who are the key players in the bond market?, 2008)

There are several different investment bonds available to both individual and institutional investors. The US Government Bonds, also known as Treasuries, are probably the most well known of all bonds on the market. Government bonds fall into three different categories: bills, notes, and bonds. Bills mature in three months to one year, notes in two to ten years, and bonds from ten to thirty years. Treasury bonds are low risk investments due to the fact that you are more likely to get your money back, and an added bonus is that any income earned from them is not taxed by state or local taxes. A couple of the other investment types are municipal bonds which are a bit more risky, and corporate bonds, which are considered high risk. The high risk factor comes into play on corporate bonds due largely to the fact that they are more vulnerable than government bonds to economic problems, mismanagement, and competition. (Types of Bonds, 2008)

One might wonder how the transactions of bonds are carried out. If it is an initial offering of a bond, then it is carried out through auction. There are many sessions that occur before the auction, and during those sessions MICEX stock exchange section members take preliminary bids from several potential buyers, and on the actual auction day, those same members make their bids through the MICEX trading system. From