Usa Bond Market New Employee Training Program Training Document

Abstract

In this training document, each of the following will be addressed: 1) the key players in the market and the types of investments available to both individual and institutional investors, 2) the way transactions are carried out, and 3) the relation, if any, between the bond markets and the stock markets.

KEY PLAYERS IN THE MARKET

The bond market can essentially be broken down into three main groups: issuers, underwriters, and purchasers.

An issuer is a legal entity that develops, registers, and sells bonds or other debt instruments in the bond market for the purpose of financing its operations of their organizations (Investopedia.com, 2006). Issuers may be domestic or foreign governments, corporations, or banks. The biggest of these issuers is the government, which uses the bond market to fund a country’s operations, such as social programs and other necessary expenses. Banks are also key issuers in the bond market and they can range from local banks up to “supranatural” banks such as the European Investment Bank, which issues debt in the bond market (Investopedia.com, 2006). The final major issuer is the corporate bond market, which issues debt to finance corporate operations (Investopedia.com, 2006). Issuers must pay dividends and distributions if declared or interest to lenders and follow the terms of their contractual obligations with their investors (Investopedia.com, 2006). The types of securities that can be issued include common and preferred stock, bonds, notes, debentures, bills and derivatives.

An underwriter, or institutional investor, is a company or other entity that administers the public issuance and distribution of securities from a corporation or other issuing body (Investopedia.com, 2006). An underwriter works closely with the issuing body to determine the offering price of the securities, buys them from the issuer, and sells them to investors via the underwriter’s distribution network (Investopedia.com, 2006). The underwriting segment of the bond market is traditionally made up of investment banks and other financial institutions that help the issuer to sell